Danone will make a euro 95 million acquisition in Ethiopia, paid in three equal instalments of Ethiopian Birr in 6,12 and 24 months. The spot rate for Birr is 47.9 and one year and two year forward trade at discount of 8% and 20 %. 

Calculate the 3 forward rates and the amount of Birr paid at each instalment. 

 

The Euro rate is 0,01% and 0,9% for 1 and 2 years,calculate the Birr rate for 1 and 2 years.

 

Define the three type of exposure.

 

Define the types and nature (what exposure you are trying to cover) of Derivatives used in general. 

 

Define currency risk and interest rate risk