Question: We described how exchange rate risk could be hedged using forward contracts. In pegged or limited-flexibility exchange rate systems, countries imposing capital controls sometimes force

We described how exchange rate risk could be hedged using forward contracts. In pegged or limited-flexibility exchange rate systems, countries imposing capital controls sometimes force their importers and exporters to hedge. First, assuming that forward contracts are to be used, and an exporter has future foreign currency receivables, what will the government force him to do? Second, how does this help the government in defending their exchange rate peg?

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