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A U.S. firm holds an asset in UK and considers selling it in one year....

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Finance

A U.S. firm holds an asset in UK and considers selling it in one year. The firm faces the following scenario of the future spot rates in one year:

State 1 State 2 State 3 State 4 State 5
Probability 20% 20% 20% 20% 20%
Spot rate ($/) 1.6 1.5 1.4 1.3 1.2
P*() 1200 1400 1600 1800 2000
P ($)

$1920

 $2100 $2240 $2340 $2400

In the above table, P* is the pound price (local price) of the asset in UK held by the U.S. firm and P is the dollar price of the asset.

If the U.S. firm hedges against this exposure using the forward contract, the firm should enter a _________ (long/short) position in the amount of forward contract at the forward price of $________________ /.

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