You recently graduated and accepted a position in the receivables division of Ex-Im-Age Corporation, a software company located in California and specializing in icon-based software. Ex-Im-Age has just made a sale to Germany and has a euro-denominated receivable of €1 million that is due in six months.

a. Represent Ex-Im-Age’s exposure as a risk profile showing: (i) the dollar value of the euro receivable (V^$∕€) as a function of the dollar value of the euro (S^$∕€), and (ii) percentage change in the dollar value of the euro receivable (v^$∕€) as a function of percentage change in spot rate (s^$∕€).

b. Using risk profiles, show how Ex-Im-Age’s euro exposure can be hedged with: (i) a currency forward, (ii) a currency futures contract, (iii) a money market hedge, and (iv) a currency option contract.