Embraer of Brazil. Embraer of Brazil is one of the two leading global manufacturers of regional jets $($Bombardier of Canada is the other$).$ Regional jets are smaller than the traditional civilian airliners produced by Airbus and Boeing, seating between $50$ and $100$ people on average. Embraer has concluded an agreement with a regional U$.$S$.$ airline to produce and deliver four aircraft one year from now for $$84$ million.

Although Embraer will be paid in U$.$S$.$ dollars, it also possesses a currency exposure of inputs$-$it must pay foreign suppliers $$17$ million for inputs one year from now $($but they will be delivering the subcomponents throughout the year$).$ The current spot rate on the Brazilian real $(R$$$)$ is $R$$$\frac{1\mathrm{.}8183}{\text{\$}},$ but it has been steadily appreciating against the U$.$S$.$ dollar over the past three years. Forward contracts are difficult to acquire and are considered expensive. Citibank Brasil has not explicitly provided Embraer a forward rate quote, but has stated that it will probably be pricing a forward off the current $4\mathrm{.}75\%$ U$.$S$.$ dollar eurocurrency rate and the $11\mathrm{.}50\%$ Brazilian government bond rate. Advise Embraer on its currency exposure.

How much of net cash position in Brazilian reais will Embraer receive in one year without a hedge if the expected spot rate in one year is expected to be $R$$$\frac{1\mathrm{.}8183}{\text{\$}}?$

R: $($Round to the nearest whole number.$)$

RadioEdison Manufacturing. Carla Surz is the director of finance for RadioEdison Manufacturing, a U$.$S$.-$based manufacturer of handheld computer systems for inventory management. RadioEdison's system combines a low$-$cost active RFID $($radio frequency identification$)$ tag that is attached to inventory items $($the tag emits an extremely low$-$grade radio frequency$)$ with custom designed hardware and software that tracks the low$-$grade emissions for inventory control. RadioEdison has completed the sale of an inventory management system to a British firm, Pegg Metropolitan $($UK$),$ for a total payment of $1,900,000.$ The exchange rates shown in the popup window, $,$ were available to RadioEdison on the dates shown, corresponding to the events of this specific export sale. Assume each month is $30$ days.

a$.$ What will be the amount of foreign exchange gain $($loss$)$ upon settlement?

b$.$ If Carla hedges the exposure with a forward contract, what will be the net foreign exchange gain $($loss$)$ on settlement?

a$.$ What will be the amount of foreign exchange gain $($loss$)$ upon settlement? Enter a positive number for a gain or a negative number for a loss.

$($Round to the nearest dollar.$)$

Chronos Time Pieces. Chronos Time Pieces of Boston exports watches to many countries, selling in local currencies to stores and distributors. Chronos prides itself on being financially conservative. At least $70\%$ of each individual transaction exposure is hedged, mostly in the forward market, but occasionally with options. Chronos' foreign exchange policy is such that the $70\%$ hedge may be increased up to a $120\%$ hedge if devaluation or depreciation appears imminent. Chronos has just shipped to its major North American distributor. It has issued a $90-$day invoice to its buyer for $1,760,000.$ The current spot rate is $$\frac{1\mathrm{.}2212}{},$ the $90-$day forward rate is $$\frac{1\mathrm{.}2281}{}.$ Chronos' treasurer, Manny Hernandez, has a very good track record in predicting exchange rate movements. He currently believes the euro will weaken against the dollar in the coming $90$ to $120$ days, possibly to around $$\frac{1\mathrm{.}1523}{}.$

a$.$ Evaluate the hedging alternatives for Chronos if Manny is right $($Case $1$: $$1\mathrm{.}1523/)$ and if Manny is wrong $($Case $2$: $$\frac{1\mathrm{.}2501}{}.$ What do you recommend?

b$.$ What does it mean to hedge $120\%$ of a transaction exposure?

c$.$ What would be considered the most conservative transaction exposure management policy by a firm? How does Chronos compare?

a$.$ Case $1$: Manny is right and the spot rate in $90$ days is $$\frac{1\mathrm{.}1523}{}.$

How much in U$.$S$.$ dollars will Chronos receive in $90$ days if $100\%$ of the transaction exposure is hedged with the forward contract?

$($Round to the nearest dollar.$)$

Ganado Europe $($B$).$ Using facts in the chapter for Ganado Europe, assume that the exchange rate on January $2,2016,$ in Exhibit $11\mathrm{.}6$ dropped in value from $$\frac{1\mathrm{.}1400}{}$ to $$\frac{0\mathrm{.}9400}{}.$ Recalculate Ganado Europe's translated balance sheet for January $2,2016,$ with the new exchange rate using the temporal rate method as shown in the popup window,

a$.$ What is the am