MZEE WA KUSUKA, owner of the Sport Wear business in Tanzania, remains concerned

about his exposure to exchange rate risk. Even if Mzee wa Kusuka hedges his transactions

from one month to another, he recognizes that a long$-$term trend of depreciation in the Kshs

could have a severe impact on his firm. He believes that he must continue to focus on the

Kenya market for selling his Sport Wears. However, he plans to consider various ways in

which he can reduce his economic exposure. At the current time, he obtains material from

local manufacturer and uses a machine to produce the Sport Wears, which are then

exported. He still uses his garage space as a place of production and would like to continue

using his garage to maintain low operating expenses.

Required;

$1$ How would Mzee wa Kusuka adjust his operations to reduce his economic

exposure? What is a possible disadvantage of such an adjustment?

$2$ Offer another solution to hedging the economic exposure in the long run as his

business grows. What are the disadvantages of this solution?