1. Your company is exporting product to Peru. Your best guess is that, over the coming year, you will have sales equal to 55 million Peruvian Soles (their currency). However, those sales will depend a lot on the results of the upcoming election in Peru and could, in reality range from a value of 40 million to 75 million soles. If you decide to enter a hedge for 55 million soles, what are the risks from doing so? Are there ways to reduce that risk? At what cost?

1. Your company is exporting product to Peru. Your best guess is that, over the coming year, you will have sales equal to 55 million Peruvian Soles (their currency). However, those sales will depend a lot on the results of the upcoming election in Peru and could, in reality range from a value of 40 million to 75 million soles. If you decide to enter a hedge for 55 million soles, what are the risks from doing so? Are there ways to reduce that risk? At what cost?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterP3: Part 3: Exchange Rate Risk Management

Section: Chapter Questions

Problem 4Q

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