A Canadian importer signed a commercial agreement with a Mexican produce exporter on January 25. The international trade agreement states that the Canadian importer has to pay the price of the fruits imported from Mexico in CAD being 200,000 MXN 3 months from now, so on April 25. On January 25 the day of the trade agreement, the spot price CAD/MXN = 16.

1- Within the commercial agreement, whom is the party facing currency fluctuation risk? (importer or exporter)

2- What is this merchant worried about? (a fluctuation of which currency and how?)

Since this merchant considers the risk of currency is very elevated, he considers going on the foreign exchange market and hedging against this risk using a forward contract:

3- What are the terms he will be specifying in the forward contract? On April 25 the payment date, the spot rate CAD/MXN = 15.

4- Show with calculations whether it was a good decision to hedge or not.

5- what is the result of these transactions?