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	$	1.55	/		$	1.45	/		$	1.35	/		$	1.25	/
P*		1,500				1,400				1,300				1,200
P	$	1,940			$	1,680			$	1,370			$	1,150

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

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

Exposure =

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

Variance =

c. 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?

Variance =