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Clear Sound Ltd . , a Sydney based company, is the world leader in electronic ear implants. Clear Sound manufactures its ear implants in Australia
Clear Sound Ltd a Sydney based company, is the world leader in electronic ear implants. Clear Sound manufactures its ear implants in Australia and exports them to the United States, which accounts for more than of its total revenue. In April Clear Sound signed a contract with its US distributor in which Clear Sound agreed to deliver ear implants and to receive USD million in July The exchange rate at the time of signing the contract was AUDUSD The gross profit margin based on this exchange rate would be
a If Clear Sound is concerned about the exchange risk, how can it hedge the risk using future or forward contracts?
b Suppose the exchange rate changed to AUDUSD when Clear Sound received the USD payment. In order to maintain the same profit margin, how much must it sell these ear implants for in the US To simplify the calculation, assume that all revenue was received in July
c Based on your answer to part briefly explain why exportoriented countries want to devalue their currencies, especially in times of economic difficulty.
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