Queens Electric Co. (QE) manufactures its products in Queens (New York - USA) and sells them all over the world. They invoice all their clients in their local currencies but all their costs are in USD. They recently signed a large contract with a Danish client Dane Edison (DE), who will pay in EUR (Euro). QE's Chief Financial Officer decided to hedge the entire exposure. They buy a foreign exchange future contract from QC Bank (QCB).

Main features of the contract:

• 200 power generators
• EUR 3,000 each
• Payment term: 1 year
• USD/EUR rate on FOREX future contract: USD 1 = EUR 0.95

Q2.a. What is QE's credit exposure on DE generated by the sale of QE generators to DE? (4 points)

Q2.b. Does QE have a credit risk on its bank QCB generated by the FOREX future contract? EXPLAIN, yes/no not sufficient. If yes, is the credit risk amount constant during the 1-year lifetime of the future contract? (4 points)

Q2.c. Three months after entering the FOREX future contracts, the EURO value compared to the USD declined to USD 1 = CHF 0.90. What is the credit exposure of QE on QCB on that day? How is it called? (5 points)