An Australian firm holds an asset in UK and faces the following scenario regarding its value next period: State 1 State 2 State 3 30% 40% 30% Probability Spot Rate P A$ 1.8500 A$ 1.1100 A$ 2.5900 1,665.00 2,331.00 3,885.00 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 pound, denominated cash flow at F1(A$/) = A$1.85/. As a result, O the firm's exposure to the exchange rate is made worse by hedging, the firm now has a nearly perfect hedge. none of the others O the firm now has a perfect hedge. An Australian firm holds an asset in UK and faces the following scenario regarding its value next period: State 1 State 2 State 3 30% 40% 30% Probability Spot Rate P A$ 1.8500 A$ 1.1100 A$ 2.5900 1,665.00 2,331.00 3,885.00 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 pound, denominated cash flow at F1(A$/) = A$1.85/. As a result, O the firm's exposure to the exchange rate is made worse by hedging, the firm now has a nearly perfect hedge. none of the others O the firm now has a perfect hedge