2. Suppose Miami introduces new scooter lanes causing an increase in demand for scooters you are importing from Bulgaria which is a member of the euro zone. You place an order for 500 scooters at a cost or Lev1,000,000 and pay Lev500,000 immediately and with the remaining Lev500,000 due on delivery in 6 mos. You are concerned about exchange rate risk. Bulgaria is not yet part of the Eurozone though its currency, the Lev, is pegged to the euro. You want to reduce your exposure to exchange rate risk by using either a spot hedge or a forward hedge and are trying to determine which is better. The current exchange rate for the Bulgarian Lev to US$ is 1.8575 Lev/$. The six month forward is 1.925 Lev/$. The interest rate on a 6 mo US CD (equivalent annual interest rate) is 2.6% and the 6 mo Lev CD (equivalent annual interest rate) is 3.1%.

1. What are the transactions for a spot hedge and how many dollars should it set aside now to meet its obligation for payment?
2. What are the transactions for a future hedge and how many dollars should it set aside now to meet its obligation for payment?