A US Firm Holds an Asset in Italy and Faces the the Following

question 4

Multiple Choice

A U.S. firm holds an asset in Italy and faces the following scenario: Where P^* = Euro price of the asset held by the U.S. firm
The CFO decides to hedge his exposure by selling forward the expected value of the euro denominated cash flow at F₁($/£) = $1.50/€. As a result

• A)the firm's exposure to the exchange rate is made worse.
• B)he has a nearly perfect hedge.
• C)he has a perfect hedge.
• D)none of the above

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