Your company sells specialized electronic components to South Africa payable in South African Rands (ZAR). The following information is available on the $/ZAR exchange rates expected to prevail at the end of the year. The local prices of the electronic components are affected by the value of ZAR as shown below.

Qi (Prob) Si Local Price (Pi) Pi (price in dollars)

0.20 $0.0550 ZAR 30,000.00 $1,650.00 0.30 $0.0600 ZAR 27,500.00 $1,650.00 0.30 $0.0650 ZAR 25,000.00 $1,625.00 0.20 $0.0700 ZAR 22,500.00 $1,575.00

a. What is relationship, as measured by , between $/ZAR rates and the component prices in US dollars.

b. Explain how you can hedge the above exposure using currency futures. The one-year forward rate is $0.06/ZAR. Show the example for one component.