Mandatory [Total 40 points) (1) (5 points) What gives rise to the currency exposure at AIFS? (2) [5 points} What would happen under the three exchange rate scenarios if Archer Lock and Tabaczynski did not hedge at all? Use the forecast sales volume of 25,0. (3) (5 points) Repeat your analysis in question (2) with (a) a [30% hedge with forwards and (b) a 100% hedge with options. Again, use the forecast sales volume of 25,D[l. Analyze the outcomes relative to the \"zero impact\" scenario described in the case {where rate = USD 1.22iEUR). For simplicity, please assume that the forward rate is 1.22 and the option's strike price is also 1.22. {4} (5 points) Fill completely the table in Exhibit 9. Analyze different levels of hedge coverage and different mixes of forwards and options. Which strategy would you prefer? Why? (5} {It} points) Repeat your analysis in questions (2) to (4) under the high-volume and low-volume scenarios outlined at the end ofthe case. Note that hedge coverage is based on the forecast sales volume of 25 [tilt] but the actual realized volume differs from the forecast. Which strategy would you prefer under each volume scenario? Why? [6} {It} points) Considering all possibilities, what hedging decision would you advocate? Briey discuss your criteria. Bonus [Total 10 points) [7) (5 points} How would your answer to question (a) change if you believed that American like to go abroad when USD is strong? That is, when USD is strong, the sales volume is likely to be high. (3) (5 points) How would your answer to question {5) change if you believed that AIFS' competitors did not hedge currency risk (and as a result set their prices based on the exchange rate at the time of sale}? Think this way: AIFS' sales volume is likely to be high (low) when its prices are better (worse) than the competition