Currency 1: Put Option on Currency 2. Formula: H1 = max(X1 - S12, 0)

Currency 2: Call Option on Currency 1.

Asset 3: Spread Option on Currency 1 and Currency 2.

Please compare charts for currencies 1 and 2 in this diagram with the ones in the "PAT in a Two-Currency Environment" section. You will see that the payoffs are the same - this is again the case of a put-call pairing in a two-currency environment: every put or call option on one side of the exchange rate market has a financially equivalent call or put option on the other side of the market. The Currency 3 payoff obviously has to be dependent on both Currency 1 and Currency 2.