Problem 1: Jones Company needs 200,000 Canadian dollars (C$) in 90 days and is trying to determine whether or not to hedge this position. Jones has developed the following probability distribution for the C$:
Possible Value of C$ in 90 Days Probability
$0.54 15%
$0.57 25%
$0.58 35%
$0.59 25%
Problem 2: The 90-day forward rate of the C$ is $0.575, and the expected spot rate of the C$ in 90 days is $0.55. If Jones implements a forward hedge, what is the probability that hedging will be more costly to the firm than not hedging?
a. 40%.
b. 60%.
c. 15%.
d. 85%.