Assume you are a US company that exports computer and electronic products to Europe and

expects to receive 50 million in revenue in 3 months' time. Given the current environment related

to COVID-19, you are concerned that you may be affected adversely and wish to reduce to the

risk that your company is exposed to. Based on this scenario, please answer the following

questions:

(a) Please explain the main financial risk faced by the US company in their business operation,

why you consider this as a risk and whether you would consider hedging. Please discuss in

your answer the outlook for the underlying variable and cite evidence of an adverse or

favourable direction. NB: reference list will not be part of the word count.

(7 marks)

(b) If hedging is recommended, then the hedging strategy you will use and explain why you have

chosen this strategy above all others

(7 marks)

(c) Irrespective of your answer above, assume you are using an option 'combination' strategy to

hedge your risk. Please use real data from CME group and provide the net cost of the hedge,

the strike prices used, and the number of contracts required. Please show calculations

where necessary.

(6 marks)