Q.1: ABC is a Thai firm listed on the Stock Exchange of Thailand (SET). The following equation is the result from a regression analysis, whereby the return on ABC stock (r_ABC,t) is the dependent variable and the return on the SET index (r_SET,t), the change in USD exchange rate (s_t^B/U$) and the change in AUD exchange rate (s_t^B/U$) are independent variables.

r_ABC,t = 0.01 + 0.95r_SET,t - 0.15s_t^B/U$ + 0.20s_t^B/A$ + e_ABC,t

Returns are measured as monthly returns over the period 2015-2020. Exchange rates are quoted as number of THB per 1 unit of a foreign currency. [2 points]

1.1. Comment on ABC's foreign currency exposure to USD and AUD. Hint: Explain the type and the direction of the exposure. [1.0 point]

1.2. If ABC were to use currency options to hedge the exposure, which FX options should ABC purchase? Explain. [1.0 point]