You are being asked to bid on a project to develop oil wells in Saudi Arabia. If you win, you would be paid in oil, and you would have costs in Saudi Riyal. How would you want to hedge your possible exposure if the odds of winning are about 50%? If the probability of winning is very small (say 1%), what alternative strategy might you consider? If the probability is very large (say 99%) what strategy might you consider? How would you make this decision?

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This is a contingence hedge situation and in such cases ... View the full answer