Suppose that the U.S. firm Alcoa sells $2 million worth of aluminum to a British firm. Answer

Question:

Suppose that the U.S. firm Alcoa sells $2 million worth of aluminum to a British firm. Answer the following questions, assuming that the exchange rate is currently $1.50 = £1 and the British firm will pay Alcoa £1,333,333.33 in 90 days.
a. What exchange-rate risk does Alcoa face in this transaction?
b. In what alternative ways can Alcoa hedge this exchange-rate risk? In your answer, provide a specific example.

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...