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A Peruvian company buys raw materials from a European company and pays in euros. It anticipates that in six months it will buy 20 million

A Peruvian company buys raw materials from a European

company and pays in euros. It anticipates that in six months it

will buy 20 million units of the material and will pay a price of

2.55 per unit. The current six-month forward exchange rate is

that one Peruvian sol = 0.2621 euros. Explain the risk faced by the peruvian company and how it can hedge that risk.

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