.Assume that you are the financial manager of Company A in the USA, which imports wine from France, and you have just contracted for a shipment of wine and your invoice is for 4 million euros. You will pay this amount 180 days in the future. The following data are available:

Current spot rate = 1.16 USD/EUR 90-Day

Forward rate = 1.13 USD/EUR

a. What is the source of your transaction exchange risk, and how much could you lose? How could you eliminate the transaction exchange risk?

b. Assuming that today the 180-day dollar interest rate is 6.40% p.a. and the equivalent euro interest rate is 13.43% p.a., is there an alternative money market hedging strategy you could use? Explain.