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 1,760,000. The current spot rate is $1.2223/, the 90-day forward rate is $1.2279/. Chronos' treasurer, MannyHernandez, 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$1.1597/.

a. Evaluate the hedging alternatives for Chronos if Manny is right (Case 1:$1.1597/) and if Manny is wrong (Case 2: $1.2528/). What do you recommend?

b. What does it mean to hedge 120% of a transactionexposure?

c. What would be considered the most conservative transaction exposure management policy by a firm? How does Chronoscompare?

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a. Case 1: Manny is right and the spot rate in 90 days is$1.1597/.

How much in U.S. dollars will Chronos receive in 90 days if100% of the transaction exposure is hedged with the forwardcontract?

$____(Round to the nearest dollar.)

2. How much in U.S. dollars will Chronos receive in 90 days if 70% of the transaction exposure is hedged with the forward contract? $ (Round to the nearest dollar.)

3. How much in U.S. dollars will Chronos receive in 90 days if 120% of the transaction exposure is hedged with the forward contract? $ (Round to the nearest dollar.)

b. Case 2: Manny is wrong and the spot rate in 90 days is $1.2528 /euro.

1. 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.) 2.How much in U.S. dollars will Chronos receive in 90 days if 70% of the transaction exposure is hedged with the forward contract? $ (Round to the nearest dollar.) 3.How much in U.S. dollars will Chronos receive in 90 days if 120% of the transaction exposure is hedged with the forward contract? $ (Round to the nearest dollar.)