Based on the Following Information About the Future Possible Exchange

question 28

Multiple Choice

Based on the following information about the future possible exchange rates and the value of your foreign assets,you have computed Var(S) = 0.00666667 and Cov(P,S) = 12.If you use the appropriate forward hedge,what will be the value of your hedged position in a situation when the future spot exchange rate is 1.4$/£?
State Prob.P* S($/£) P( = SP*)
1 1/3 £1000 1.4 $1,400
2 1/3 £1,000 1.5 $1,500
3 1/3 £1,100 1.6 $1,760

• A) $1500
• B) $1553
• C) $1580
• D) $1620

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