Referring to the information provided in problem I, consider the transaction exposures of Zigzag's French and Swiss affiliates, which, as of January I, 1996, have incurred the following one-year maturity exposures.

(a) Zigzag's French afftliate imports steel needles from a Swedish company;

accounts payable by year-end in the amount of SKI ,500,000 are recorded. It also exports sewing tables to Innovation, a Swiss department store; the transaction is materialized by SF3,OOO,OOO of accounts receivable maturing by year-end.

(b) Zigzag's Swiss affiliate exports portable sewing machines to France and S.weden. Each exports contract calls for payment on December 31, 1996, of FFIO,OOO,OOO and SKS,OOO,OOO, respectively.

Assuming that exchange gains are taxable in France, Switzerland, and the U.S. at the respective rates of 25%, 10%, and 24%, and that exchange losses are tax-deductible at normal rates of 50%, 15%, and 48%, show how the different transaction exposures can be reduced on an after-tax basis. The Swedish crown is expected to depreciate by 5 % and 2 %, respectively, vis-a-vis the Swiss franc and the U.S. dollar, and to appreciate by 8% vis-a-vis the French franc during 1996.