A U.S. based MNC has contracted to sell 250 million electronic chips to a Swedish firm for
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Question:
A U.S. based MNC has contracted to sell 250 million electronic chips to a Swedish firm for 25 Krona each. The chips are to be delivered and paid for in 4 months. The current exchange rate between Krona and the $ is $1.00 equals 8.873 Krona. Consider the information provided in #1 above. In three months, when the chips are delivered and paid for, the exchange rate is $1.00 equals 8.5 Krona. Consider the information provided in #1 and #2 above. Carefully explain how the U.S. firm could use (1) a forward contract for foreign exchange, (2) a futures contract for foreign exchange, and (3) an option contract for foreign exchange to hedge their position to protect their profits for this transaction
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