Dell is selling 20,000 units in Europe at an average price of 1,700 per unit. Both the spot and forward exchange rates are $1.20/. The cost of each unit in dollars is $1,500 per unit. The elasticity of demand for Dell computers in Europe is = 1.5.

1. Now consider a depreciation of Euro (relative to US dollar) from $1.20/ to $1.08/ and assume zero passthrough. What is Dell's dollar profit exposure and how to hedge it using forward?

a. $45 million, buy $45million forward

b. 45 million, sell 45million forward

c. $34 million, buy $20 million forward

d. 34 million, sell 34 million forward

2. What is the delta for Dell's profit assuming zero passthrough?

a. 0

b. 2.35

c3.78

d.3.65

3. Reconsider a depreciation of Euro ( relative to US dollar) from $1.20/ to $1.08/. Now assume passthrough = 0.5. What is Dell's total profit in $?

a. $11,869,440

b. $8,028,860

c. $12,028,410

d. $6,397,440

4. What are respectively the delta and exposure for Dell's dollar profit passthrough =0.5?

a. delta = 1.981; exposure = 17,829,000 million

b. delta = 1.137; exposure = 10,233,000 million

c. delta = 2.566; exposure = 23,094,000 million

d. delta = 5.741; exposure = 51,660,000 million