You are a U.S. exporter concerned about your transactionexposure on a recent sale to an importer in Germany. The invoice,just sent, is for 500,000 euros payable in 60 days, which will beabout mid-February. The current exchange rate is $1.00 per euro,and you fear that the dollar will appreciate against the euro dueto the rebound in the domestic economy and the improvement in theeconomy with potentially increasing interest rates. The 60-dayforward rate is $.99.

a) What is the value of the invoice indollars at the current spot rate?

b) If a forward contract is sold, what will bethe value of the invoice in dollars at the forward rate?

c) What are the advantages anddisadvantages of hedging the transaction with a forwardcontract?