Question $4$

a$)$ Distinguish among the three types of foreign exchange exposure and illustrate each type with an example. $(6$ marks$)$

b$)$ Identify and describe two internal and two external hedging techniques that multinational companies can use to manage the exposures referred to in part $($a$)$ above.$(12$ marks$)$

c$)$ Pricemart Ltd is a French$-$based company whose home currency is the Euro $().$ Pricemart trades with a foreign company based in Mexico whose home currency is the Mexican Peso $($MXN$).$ The following information is available:

Spot rate: $15\mathrm{.}00$ MXN per $$

Home country $()$

INTEREST RATE: $3\%$ p$.$a$.$

INFLATION RATE: $2\%$ p$.$a$.$

Foreign country $($MXN$)$

INTEREST RATE : $7\%$ p$.$a$.$

INFLATION RATE: $5\%$ p$.$a$.$

REQUIRED:

Based on the information provided above, calculate the one$-$month $($MXN per $)$ forward exchange rate.