Question
An Australian firm holds an asset in France and faces the following scenario regarding its value next period: State 1 State 2 State 3 Probability
An Australian firm holds an asset in France and faces the following scenario regarding its value next period:
| State 1 | State 2 | State 3 |
Probability | 40% | 20% | 40% |
Spot Rate | A$ 2.1000 | A$ 1.8000 | A$ 1.1000 |
P* | 2,543.33 | 2, 967.22 | 4,855.45 |
P* = price of the asset held by the Australian firm The CFO decides to hedge his exposure by selling forward the expected value of the euro. denominated cash flow at F1(A$/) = A$1.64/. As a result,
Group of answer choices
none of the other answers.
the firm now has a perfect hedge.
the firm now has a nearly perfect. hedge.
the firm's exposure to the exchange rate is made worse by hedging.
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