A U.S. firm holds an asset in Great Britain and faces the following scenario:

	State 1				State 2				State 3
Probability	25%				50%				25%
Spot rate	$	2.50	/		$	2.00	/		$	1.60	/
P*		1,800				2,250				2,812.50
P	$	4,500			$	4,500			$	4,500

where,

P^* = Pound sterling price of the asset held by the U.S. firm

P = Dollar price of the same asset

The "exposure" (i.e., the regression coefficient beta) is

Hint: Calculate the expression Cov(P,S)Var(S).Cov(,)Var().

Multiple Choice

7,500

none of the options

2,500

2,500