On $25$th January $2021$ Turla, a Brazilian importer was sent an invoice for I. $200,000,000$ from a US company, payable on $25$ th February. The spot exchange rates for the two currencies and one$-$month interest rate spreads are:

USD per $1$ Brazilian BRL $0\mathrm{.}2723$

Brazilian one$-$month interest rate: $6\mathrm{.}55\%-6\mathrm{.}65\%$

USA one$-$month interest rate spread: $3\mathrm{.}25\%-3\mathrm{.}28\%$

The table below provides details of Brazilian BRL$/$US dollar currency futures on $25$th January $2021.$

BRL$/$USD Futures: Contract Size BRL$100,000$

Contract Settleme Futures Price

Required

a$)$ Critically explain the currency risk that the Brazilian importing company faces in connection with the US dollar payment.

b$)$ Compute the one$-$month forward rate of exchange that the Brazilian importing company can fix using a money market hedge.

c$)$ Construct a hedge against exchange rate risk for the Brazilian importing company using futures contracts.

d$)$ Assume that on $25$ th February $2021$ the Brazilian BRL$/$ US Dollar spot exchange rate is USDO. $2500$ and the price of the futures contract you chose for the hedge in part c$)$ is USDO$\mathrm{.}2498.$ Show how effectively the hedge works to protect the Brazilian company from exchange rate risk.