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A US exporter will receive 30 million Norwegian kroner (NOK) in 3 months and wishes to hedge the US dollar (USD)-NOK exchange rate. Assume that

A US exporter will receive 30 million Norwegian kroner (NOK) in 3 months and wishes to hedge the US dollar (USD)-NOK exchange rate. Assume that there is no active forward market in NOK. Therefore, the company decides to hedge using a forward contract on a foreign currency whose price changes are highly correlated with those of NOK. It decides to use a forward contract on the euro (EUR).

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