Choose the correct statement.
I. The forward hedge is superior to the money market hedge and has a 70% chance of outperforming the put option hedge. Therefore, the forward hedge is the optimal hedge. When comparing the optimal hedge (the forward hedge) to no hedge, the unhedged strategy has an 80% chance of outperforming the forward hedge. Therefore, the firm may desire to remain unhedged.
II. The money market hedge is superior to the forward hedge and has a 70% chance of outperforming the put option hedge. Therefore, the money market hedge is the optimal hedge. When comparing the optimal hedge (the money market hedge) to no hedge, the unhedged strategy has an 80% chance of outperforming the money market hedge. Therefore, the firm may desire to remain unhedged.
III. The put option hedge is superior to the forward hedge and money market hedge. The optimal hedge (the put option hedge) is preferable to the unhedged strategy because there is a 70 percent chance that it will outperform the unhedged strategy.