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Each month, the Sports Exports Company - a US company - receives an order for football balls from a British sporting goods distributor. The monthly
Each month, the Sports Exports Company - a US company - receives an order for football balls from a British sporting goods distributor. The monthly payment for the balls is denominated in British pounds, as requested by the distributor. So, the Sports Exports Company must convert the pounds received into dollars. Sports Exports Company also received a large order for several types of sport equipment from the same distributor. In this case the distributor asked for 3 months credit and Sports Export Company accepted the terms of the transaction. a. Explain how the Sports Exports Company could utilize the spot market to facilitate the exchange of currencies. Give a concrete example. b. Explain how the company is exposed to exchange rate risk and how it could use forward market to hedge this risk. c. To optimize the use of its financial resources Sports Exports Company could also use the Letter of Credit that the British distributor signed for the contract related to the sport equipment. Please explain how it would work in practice
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