Problem
A U.S. firm has a subsidiary in Great Britain and faces the following scenario:
|
Probability |
Spot Rate |
C* |
C |
Proceeds from Fwd. contract |
Dollar value of hedged position |
| State 1 |
40% |
$2.50/£ |
£2,000 |
|
|
|
| State 2 |
60% |
$2.30/£ |
£2,500 |
|
|
|
Compute the proceeds from the forward contract if you hedge this exposure.
Assume the forward rate is $2.45/£. Fill in the proceeds in the appropriate box in the table above. Use two decimal places in your calculations.