An Australian firm holds an asset in UK and faces the following scenario regarding its value next period:

	State 1	State 2	State 3
Probability	30%	40%	30%
Spot Rate	A$ 2.5900	A$ 1.8500	A$ 1.1100
P*	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,

Group of answer choices

. the firm's exposure to the exchange rate is made worse by hedging.

none of the others

the firm now has a perfect hedge.

the firm now has a nearly perfect hedge.