1. Your firm exports goods to the United States and will be collecting a $25,000,000 receivable in 3 months time. Your boss however, is worried about what she believes to be continued weakness in the US dollar relative to the Canadian dollar. Recommend 3 tools that could be used to hedge this risk exposure and explain how you would use them to remove this uncertainty.
2. Explain why exotic risks (volcanic explosions, locust plague, angry despot, civil war, etc) can be very difficult (if at all) and expensive to hedge against.
3. Consider a firm conducting extraction operations in the Alberta Tar Sands. If the price of its output falls below the cost of extraction, the firm has retained the strategic option to cease production and send its workforce home (though this has cost the firm somewhat greater labour costs). The real option to suspend operations can be viewed as having what type of option on the price of output (put or call)? Explain.