QUESTION 2: Dell imports about 97 percent of its manufacturing costs. What type of exposure does that create for it? What are its options to reduce that exposure? Exposure is actually another name of risks that a company has to face when operating in market. As a general rules, businesses always try to identify all the risks they are able to encounter and seek the best way to reduce or even avoid them (Andersen and Schroeder, 2010). In case of Dell MERCOSUR, the import of nearly all of its manufacturing costs can easily put the company in the transaction exposure. Transaction exposure is type of foreign exchange rate that companies involved in international trade may have to face. It occurs due to the adverse fluctuation of the exchange rate which will result in the change in the value of a contract before it is settled (Tatom, 2011). Dell will have to cope with this exposure as the value of the transfer price payable may change under the impact of the change in exchange rate between US dollar and Brazilian. In case the value of the real goes down with respect to the dollar, strategy like lead strategy to which the company will pay for the imports before they are due, will help the company minimize the cost (Vij, 2006). Besides, Dell can also hedge their exposure through the forward contract and foreign currency options. A forward contract is a non-standardized contract which is signed between two parties with aim to buy or sell an assets at a specific time at an arranged price (Andersen and Schroeder, 2010). This type of contract offer a complete hedge that it can be used against the time period of exposure and for the cash size of the exposure (Daniel et al., 2012). Similarly, foreign currency options are considered as more flexible for hedging and for speculating. Foreign currency option, in simple word, is a contract which provides "the right for the purchaser (or the buyer) but not the obligations, to purchase or sell a fixed amount of foreign exchange at a fixed price per unit during a specified time period" (Andersen and Schroeder, 2010)