Suppose that the U.S. firm Alcoa sells $2 million worth of aluminum to a British firm. If the exchange rate is currently $1.50 = 1 and the British firm will pay Alcoa 1,333,333.33in 90 days, answer the following questions.

1. What exchange-rate risk does Alcoa face in this transaction?

2. In what alternative ways can Alcoa hedge this exchange-rate risk?

3. Give a specific example of how Alcoa could hedge this exchange-rate risk.