Hugo, Inc., located in New York, with operations in Berlin, Germany, sells its products in the German market. The company receives payment in euros. Zelien, Inc., located in Berlin, sells its products in the U.S. market and receives payment in dollars. The companies do not sell to each other. If Hugo and Zelien enter into a currency swap:
Options:

1. A currency exchange broker will act as a financial intermediary and convert the euros and dollar contracts at an agreed equilibrium conversion rate, thereby eliminating exchange risk for both companies.
2. Hugo agrees to pay Zelien for all exchange rate losses on Zelien's dollar denominated contracts. In turn, Zelien agrees to pay Hugo for all exchange rate losses on Hugo euros denominated transactions.
3. Hugo agrees to assign cash flows from its euros denominated contracts to Zelien. In turn, Zelien agrees to assign cash flows from its dollar denominated contracts to Hugo.
4. Hugo and Zelien agree to sell their euros and dollar denominated contracts to an exchange broker. The broker will sell the contracts in the open market. At maturity, Hugo and Zelien will share responsibility for any losses the broker incurs.