intel semiconductors is a us based semicondutor manufacturing company that exports its products to India. Intel expecs to receive paymnet on a shipment of goods in three months. Because the payment will be in indian rupees and since intel is concerned about a possible decline in the value of the indian rupee over the next three months it is considering to hedge this risk. The US risk free rate is 3% and the India risk free rate is 8%. Assume that the interest rates are going to remain fixed at this level for the next six months. The current spot exchange rate is $0.013 (per indian rupee).

a. How should intel hedge its exposure to currency risk ? should it use a long or short forward contract ? Explain succinctly in a few sentences.

b. Calculate the no arbitrage fair exchange rate at which Intel could enter into a forward contract that expires in 3 months.

c. Compare and contrast investment assets vs. Consumption commodities.