Chronos Time Pieces.$$Chronos Time Pieces of Boston exports watches to many countries, selling in local currencies to stores and distributors. Chronos prides itself on being financially conservative. At least $70\%$ of each individual transaction exposure is hedged, mostly in the forward market, but occasionally with options. Chronos' foreign exchange policy is such that the $70\%$ hedge may be increased up to a $120\%$ hedge if devaluation or depreciation appears imminent. Chronos has just shipped to its major North American distributor. It has issued a $90-$day invoice to its buyer for euro $1,750,000.$ The current spot rate is $$1\mathrm{.}2223/$euro$,$ the $90-$day forward rate is $$1\mathrm{.}2279/$euro$.$ Chronos' treasurer, Manny Hernandez, has a very good track record in predicting exchange rate movements. He currently believes the euro will weaken against the dollar in the coming $90$ to $120$ days, possibly to around $$1\mathrm{.}1617/$euro$.$

a$.$ Evaluate the hedging alternatives for Chronos if Manny is right $($Case $1$: $$1\mathrm{.}1617/$euro$)$ and if Manny is wrong $($Case $2$: $ $1\mathrm{.}2605$ divided by euro$).$ 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?