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 $1.2/ to $1.08/ and assume zeo 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