A USfirm Holds an Asset in Great Britain and Faces the the Following

question 1

Multiple Choice

A U.S.firm holds an asset in Great Britain and faces the following scenario:
$\begin{array}{l}\begin{array} { l } &\text { State 1}\\\text { Probability } & 25 \% \\\text { Spotrate } & \$ 2.20 / £ \\P^{*} & £ 3,000 \\P & \$ 6,600\end{array}\begin{array} { l } \text { State 2}&\text { State 3}\\50 \% & 25 \% \\\$ 2.00/£ & \$ 1.80 / £ \\£ 2,500 & £ 2,000 \\\$ 5,000 & \$ 3,600\end{array}\end{array}$
where,
P^* = Pound sterling price of the asset held by the U.S.firm
P = Dollar price of the same asset
Which of the following would be an effective hedge?

• A)Sell £7,500 forward at the 1-year forward rate,F₁($/£),that prevails at time zero.
• B)Buy £2,500 forward at the 1-year forward rate,F₁($/£),that prevails at time zero.
• C)Sell £25,000 forward at the 1-year forward rate,F₁($/£),that prevails at time zero.
• D)none of the options

Comprehend the importance of varying sentence and paragraph length for effective communication.

Recognize the differences between business and academic writing.

Identify strategies for effective proofreading focusing on content, organization, and style errors.

Learn the procedures for producing error-free written communications.

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