Section $1$: The Basics of Hedging

A small German firm bought a patent from a British firm and will make a payment of $1$ million

British pounds in $90$ days. This German firm conducts its business operations primarily in euros.

It does not hold any other assets or liabilities in British pounds

Is this firm exposed to exchange rate risk?

Does it hold a long position or a short position in pounds?

cash outlay $($denominated in euros$)?$

What does hedging mean?$|$

Assume that the euro is the domestic currency. The current spot exchange rate $E_t$ is $\frac{1\mathrm{.}17}{}.$

Is this exchange rate expressed using the direct quote or the reverse quote?

The current $90-$day forward exchange rate $F_{t+1}$ is $\frac{1\mathrm{.}20}{}.$ How could the German firm hedge

its exchange rate risk exposure? What is the amount of the forward contract $($in euros$)?$