Chronos Time Pieces. Chronos Time Pieces of Boston exports watches to many countries, selling in local currencies to stores and distributors. Chronos prides itself on being financially conservative. At least 70% of each individual transaction exposure is hedged, mostly in the forward market, but occasionally with options. Chronos' foreign exchange policy is such that the 70% hedge may be increased up to a 120% hedge if devaluation or depreciation appears imminent. Chronos has just shipped to its major North American distributor. It has issued a 90-day invoice to its buyer for 1,630,000. The current spot rate is $1.2218/, the 90-day forward rate is $1.2281/. Chronos' treasurer, Manny Hernandez, has a very good track record in predicting exchange rate movements. He currently believes the euro will weaken against the dollar in the coming 90 to 120 days, possibly to around $1.1674/. a. Evaluate the hedging alternatives for Chronos if Manny is right (Case 1: $1.1674/) and if Manny is wrong (Case 2: $1.2583/). What do you recommend? b. What does it mean to hedge 120% of a transaction exposure? c. What would be considered the most conservative transaction exposure management policy by a firm? How does Chronos compare? a. Case 1: Manny is right and the spot rate in 90 days is $1.1674/. How much in U.S. dollars will Chronos receive in 90 days if 100% of the transaction exposure is hedged with the forward contract? $ (Round to the nearest dollar.)

Chronos Time Pieces. Chronoo Time Pieces of Boston exports watches to mary countries, seling in local currencies to stores and distributors. Chronos prides itsolf on being financialy conservotive. At least 70% of each individual transaction exposure is hedged, mosty in the forward market, bul occasionally with optons. Chronos' foreign exchange policy is such that the 70% hedge may be increased up to a 120% hedge if devaluation or depreciation appears imminent. Chronos has just shipped to its major North Anerican distroutor. It has issued a 90 -day inveice to its movements. He currently believes the euro wil weaken against the dolar in the coming 90 to 120 days, possibly to around $1.1674/t : a. Evaluste the hedong allernatives for Chronos if Marny is night (Case 1:\$1.1674/), and if Maniry is wrong (Case 2:\$1.2583/6). What do you recommend? b. What does it mean to hedge 120% of a transaction exposute? c. What would be considered the most conservalive transaction exposure management policy by a frm? How does Chrones comparo? a. Case 1: Manny is night and the spot rate in 90 days is $1,1674/C. How much in U.S. dolars will Chronos receive in 90 days 1100% of the transaction exposure is hedged wath the forward contract? (Round to the neareat dollar.)