Homework Answers
The Euro foreign exchange risk exposure = amount
receivable-amount payable.
= €20million -€10million
=€10 million.
As Euro is receivable, the chief financial officer of a
manufacturing company is afraid of Euro price falling.
He should hedge his position in such a way that if euro price
falls, he gets a profit from it.
In this case, he should go "SHORT on forward contract(s) on Euro", as the price falls he will get the money. So that he will be able to recover his money from forward contract when the euro prices fall.
He should sell the Euro currency forward contract.
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