Genex (Germany) Plc is negotiating with a Russian customer, Veshchi Ltd, who wishes to purchase a consignment of power drills. The order is for 6,000 power drills, and Veschi Ltd has insisted that they pay in Russian Ruble (RUB). Genex

(Germany) Plc agree to receive a payment of RUB 12,000,000 for the drills in 3 months time, though are concerned that the /RUB exchange rate might change adversely. The following market information is available:

Current Spot 1/ RUB 67.8 exchange rate	Forward rate 1/ RUB 63.9 (3 months)
German 8.00% p.a. borrowing rate	German 6.00% p.a. investment rate
Russian 7.00% p.a. borrowing rate	Russian 5.00% p.a. investment rate
Put option 1/ RUB 64.0 exercise price	Put option 2,500 Premium

Required:

a) Identify and calculate the costs of the alternative strategies available for hedging this risk and advise which strategy would have produced the best outcome assuming the actual spot rate in 3 months time is 1/ RUB 64.3

b) Define economic exposure and explain, in detail, the techniques a company could use to reduce foreign exchange risk.

c) As mentioned above, a significant number of Genex (Germany) Plcs exports are made to the UK. Explain how a depreciation of the Euro against the British Pound might impact on the companys economic exposure. Explain the options available to Genex (Germany) Plc to react to this impact?