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R.S. firm (a US firm) holds an asset in Great Britain and faces the following scenario:

The table is: State 1: Probability is 25%, spot rate is $2.20/, P* is 3,000, and P is $6,600. State 2: Probability is 50%, Spot Rate is $2.00/, P* is 2,500 and P is $5,000. State 3: Probability is 25%, spot rate is $1.80/, P* is 2,0000 and P is $3,600

P^* = Pound sterling price of the asset held by the U.S. firm P = Dollar price of the same asset You are asked by the CEO of R.S. Firm to do the following:

d. Determine if the R.S. Firm should hedge or not (explanation needed)

e. If your answer to d is for R.S. Firm to hedge, design a hedging strategy for this exposure.

f. Suppose that you implement your hedging strategy described above, what will be R.S. firms expected cash flows in state 1,2, and 3 respectively will be? If your answer to d is not to hedge then just say NA.