International Financial Management 2nd Edition by Geert Bekaert ,Robert Hodrick

Exercise 13

Intel is scheduled to receive a payment of ¥100,000,000 in 90 days from Sony in connection with a shipment of computer chips that Sony is purchasing from Intel. Suppose that the current exchange rate is ¥103 $, that analysts are forecasting that the dollar will weaken by 1% over the next 90 days, and that the standard deviation of 90-day forecasts of the percentage rate of depreciation of the dollar relative to the yen is 4%.
a. Provide a qualitative description of Intel's transaction exchange risk.
b. If Intel chooses not to hedge its transaction exchange risk, what is Intel's expected dollar revenue
c. If Intel does not hedge, what is the range of possible dollar revenues that incorporates 95.45% of the possibilities