QUESTION 1

Your company sells specialized electronic components to South Africa payable in South African rands (ZAR).
The following information is available on the expected $/ZAR exchange rates to prevail at the end
of the year. The local prices of the electronic compnents are affected by the value of ZAR, as shown below.
Qi (Prob)	Si	Local Price (Pi)	Pi (price in dollars)
0.20	$0.0550	ZAR 30,000.00	$1,650.00
0.30	$0.0600	ZAR 27,500.00	$1,650.00
0.30	$0.0650	ZAR 25,000.00	$1,625.00
0.20	$0.0700	ZAR 22,500.00	$1,575.00

a. Explain how you can hedge the above exposure using currency futures.

The one-year forward rate is $0.06/ZAR. Show the example for one component.