(b) What is the variance of the dollar price of this asset if the US firm remains unhedged against this exposure?

(c) If the US firm hedges against this exposure using the forward contract, what is the variance of the dollar value of the hedged position?

( Answe with steps please)

A US firm holds an asset in France and faces the following scenario: State 1 State 2 State 3 State 4 Probability 20% 30% 30% 20% P* 1800 1600 1400 1200 P $1450 $1550 $1650 $1750 In the above table, P* is the euro price of the asset held by the U.S. firm and P is the dollar price of the asset. (a) Compute the exchange exposure faced by the US firm