US based Student Company is receiving payments in British pounds for the monthly exports to the United Kingdom. Although all of its receivables are denominated in pounds, it has no payables in pounds or in any other foreign currency. Joe, the owner of the Student Company, wants to assess his firms exposure to exchange rate risk.

a. What kind of exposure(s) does Student Company have? (4 marks)

b. Joe is considering a change in the pricing policy in which the importer must pay in dollars so that Joe will not have to worry about converting pounds to dollars every month. If implemented, would this policy eliminate the exposure of Student Company mentioned in part a? Briefly explain. (4 marks)

c. If Joe decides to implement the policy described in part b above, how would Student Company be affected (if at all) by depreciation of the pound? Would it differ if Joe retained his original policy of pricing the exports in British pounds? Briefly explain. (4 marks)