A U.S. firm holds an asset in Great Britain and faces the following scenario:
Probability State 1 (25%) State 2 (50%) State 3 (25%)
Spot rate $2.20/pound $2.00/pound $1.80/pound
P* 2,000 pounds 2,500 pounds 3,000 pounds
P $4,400 $5000 $5,400
In this case, the firm's exposure (which we referred to as "b") equals
a.-50 pounds
b.-5,000 pounds
c.-2,500 pounds
d.-143 pounds