A U$.$S$.$ firm holds an asset in France and faces the following scenario:

State $1$ State $2$ State $3$ State $4$

Probability $25\%25\%25\%25\%$

Spot rate $ $2\mathrm{.}20$ per euro $ $2\mathrm{.}10$ per euro $ $2\mathrm{.}00$ per euro $ $1\mathrm{.}90$ per euro

P$*1,5001,4001,3001,200$

P $ $2,200$ $ $1,940$ $ $1,500$ $ $1,280$

In the above table, P$*$ is the euro price of the asset held by the U$.$S$.$ firm and P is the dollar price of the asset.

Required:

Compute the exchange exposure faced by the U$.$S$.$ firm.

What is the variance of the dollar price of this asset if the U$.$S$.$ firm remains unhedged against this exposure?

If the U$.$S$.$ firm hedges against this exposure using a forward contract, what is the variance of the dollar value of the hedged position?