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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