Tony produces high quality widgets in his workshop in Melbourne. Business is flourishing and numerous orders are in the pipeline.

Amidst all this, he receives a large order of 500 000 widgets at an offer price of $1 000 Wakandan Dollar (WKD) a piece from Wakanda, a developing nation somewhere in the African continent. The price per piece offered is 80% more than the prevailing market price, and Tony is overjoyed!

The widgets have to be supplied to Wakanda within 3 months (90 days) at the time of signing the contract.

Wakanda, a fledgling democratic nation, is often engaged in internal conflicts and disturbances. Sadly, Wakanda's ruler, the Black Panther, passed away recently (RIP), exacerbating the civil unrest. As a result, the currency tends to fluctuate. It will likely weaken sharply in the near future.

In light of the currency fluctuation risk involved, should Tony go ahead with the contract to supply the widgets to Wakanda? If he goes ahead, what measures can he adopt to minimize his foreign exchange fluctuation risk and safeguard the exchange rate used in the contract?

The current spot exchange rate is 1 AUD = 25 Wakandan Dollar (WKD).

In your discussion, please note and consider:

Tony is the exporter

How much revenue will Tony receive at the current spot exchange rate?

How much revenue will Tony receive if the Wakandan Dollar depreciates to 1 AUD = 50 Wakandan Dollar in 3 months?

What should Tony do in this scenario?