Furry Company needs 200,000 Canadian dollars (CAD) in 120 days and is trying

to determine whether or not to hedge this position. Furry has developed the

following probability distribution for the Canadian dollar:

Possible CAD value in 120 days Probability

AUD0.6100 12%

AUD0.6520 23%

AUD0.6760 41%

AUD0.6930 24%

The 120-day forward rate of the Canadian dollar is AUD0.6650, and the expected

spot rate of the Canadian dollar in 120 days is AUD0.6666. If Furry implements

a forward hedge, what is the probability that hedging will be more costly to the

company than not hedging?

a. 76%

b. 64%

c. 88%

d. 35%

e. 12%