Question
unronos TimePieces.Chronos TimePieces of Boston exports watches to many countries,selling in local currencies to stores and distributors.Chronos prides itself on being financially conservative.At least 70%of
unronos TimePieces.Chronos TimePieces of Boston exports watches to many countries,selling in local currencies to stores and distributors.Chronos prides itself on being financially conservative.At least 70%of each individual transaction exposure is hedged,mostly in theforward market,but occasionally with options.Chronos'toreignexchangepolicysuch that the 70%hedge may bi-Incitased up to a 120%hedge ifdevaluationor depreciation appearr imminent.Chronos has just shipped to its major North American distributor.It has issued a 90-dayinvoice to its buyer for1,670,000.The current spot rate is$1.2222/,the 90-day forward rate is$1.2279/.Chronos'treasurer,Manny Hernandez,has a very good track record in predicting exchange rate movements.He currently believes the euro Will weaken against the dollar in thecoming 90 to 120 days,possibly to around$1.1617/a.Evaluate the hedging alternatives for Chronos if Manny is right(Case 1:$1.1617/)and if Manny is wrong(Case 2:$1.2643/).What do you recommend
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