QUESTION 2 (25 MARKS) (UNIT 3) a) General Motors exports cars to Spain but the strong dollar against the euro hurts sales of GM cars in Spain. In the Spanish market, GM faces competition from the Italian and French car makers, such as Fiat and Renault. Recommend the possible measures for to GM maintain its market share in Spain. (6 marks) b) A U.S. firm holds an asset in France and faces the following scenario: Probability 25% 25% 25% 25% Spot rate $1.20/ $1.10/ $1.00/ $0.90/ P* 1500 1400 1300 1200 P $1800 $1540 $1300 $1080 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. 1) Calculate the exchange exposure faced by the U.S. firm. (13 marks) Page 2 of 3 BBF308/05 & BBF308/03 INTERNATIONAL FINANCIAL MANAGEMENT JULY 2020 ASSIGNMENT 2 ii) What is the variance of the dollar price of this asset if the U.S. firm remains unhedged against this exposure? (3 marks) iii) If the U.S. firm hedges against this exposure using the forward contract, what is the variance of the dollar value of the hedged position