Your firm is a Connecticut-based importer of foods. You have placed an order with a Belgium firm for 100,000 worth of chocolates. Payment (in euro) is due in 12 months. Use a money market hedge to redenominate this one-year payable into a U.S. dollar-denominated payable with a one-year maturity. The current exchange rate is $1.5/. The one-year dollar interest rate is 2%; the one-year euro interest rate is 5%.

a. Explain the process of a money market hedge.

b. Conduct the cash flow analysis of the money market hedge