A UK firm owns a product plant in the industrial outskirts of Montpellier (France), which it may sell in the near future when the plans for the dismissal of the product line take place. The board directors of the UK firm have been given the following forecasts regarding the value of the asset in the next year:

Calculate the amount of the exchange exposure faced by the UK firm.

Calculate the variance of the sterling value of the asset if the UK firm remains unhedged against this exchange risk exposure.

Calculate the variance of the sterling value of the asset if the UK firm chooses to hedge against this exchange risk exposure.

Probability S(/) value of the plant

State 1 0.25 1.20/ 3.2m

State 2 0.25 1.25/ 3.6m

State 3 0.25 1.30/ 4.1m

State 4 0.25 1.35/ 4.5m