6. Find an effective hedge financial hedge if a U.S. firm holds an asset in Great Britain and faces the following scenario: State: Probability State 1: 25% State 2: 50% State 3: 25% Spot Rate $2.20/ $2.00/ $1.80/ p* 3,000 2,500 2,000 $6,600 $5,000 $3,600 p* = Pound sterling price of the asset held by the U.S. firm P = Dollar price of the same asset The CFO runs a regression of the form P=a+b*S+e The regression coefficient is estimated as b=7500 Which of the following is the most effective hedge financial hedge? Sell 2,500 forward at the 1-year forward rate, F1($/), that prevails at time zero. Sell 7,500 forward at the 1-year forward rate, F1($/), that prevails at time zero. Buy 7,500 forward at the 1-year forward rate, F1($/), that prevails at time zero. 6. Find an effective hedge financial hedge if a U.S. firm holds an asset in Great Britain and faces the following scenario: State: Probability State 1: 25% State 2: 50% State 3: 25% Spot Rate $2.20/ $2.00/ $1.80/ p* 3,000 2,500 2,000 $6,600 $5,000 $3,600 p* = Pound sterling price of the asset held by the U.S. firm P = Dollar price of the same asset The CFO runs a regression of the form P=a+b*S+e The regression coefficient is estimated as b=7500 Which of the following is the most effective hedge financial hedge? Sell 2,500 forward at the 1-year forward rate, F1($/), that prevails at time zero. Sell 7,500 forward at the 1-year forward rate, F1($/), that prevails at time zero. Buy 7,500 forward at the 1-year forward rate, F1($/), that prevails at time zero