13. [Hedging foreign currency cash flows]. Holmen exports much of its paper, paperboard, and timber pro- duction to other European countries. Panel A of Exhibit 16P-2 contains data from Holmen's 2001 financial nsk management discussion. Holmen reports in Swedish krona (SEK).

a. Discuss why Holmen might wish to hedge the foreign ex- change risk associated with its transaction-related cash flows.

b. Holmen had hedged four to five months of currency flows in 1999 and 2000. Using the exchange rate data in panel B of Exhibit 16P-2, discuss what may have motivated Holmen to increase its hedge to the amounts shown in panel A.

c. Holmen translates foreign currency revenues using the hedged exchange rate. The SEK declined against both the euro and pound sterling during the first half of 2002. Explain how the company's exchange rate hedges affected reported sales and income during that period.