Payless Shoes has a shoe contract with a Hong Kong customer. Payless Shoes will pay 30 million Hong Kong dollars (HK$) and is due in three months. The current spot and 3-month forward exchange rates are $0.13/HK$.

a. Form a forward market hedge.

b. Indicate how the hedge eliminates foreign exchange exposure by identifying the forward contracts cash inflows and outflows on a timeline. Draw Payless expected future cash flow in Hong Kong dollars on a timeline.

c. Indicate how the hedge eliminates foreign exchange exposure using the payoff profile graph.