2. Suppose that you were importing small electric transformers, that delivery from all suppliers would take approximately six months, and that you faced the situation shown in the table below:

a. Where would you buy if you decided on forward hedging?

b. Where would you buy if you decided on being unhedged?

c. If you knew that your own expected future spot rates were also the market’s expected spot rates, could you deduce from the table if there is a forward risk premium?

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United States Canada Great Britain Switzerland Germany Local cost $20,000 Can$22,000 10,000 SFr 22,000 18,000 S($/J) 1 0.94 2.00 0.90 1.50 $($/D) 1 0.92 2.05 0.89 1.52 F ($/J) 1 0.93 2.02 0.91 1.54