Provide estimates of benefits and costs

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How would I solve a question similiar to this. Using the forex forward markets to HEDGE currency risk for an export or import transaction worth $1,000,000. For example, how would you hedge currency risk being a US exporter of bourbon or importer of autos? Assume that the time gap between the signing of your trade contract and payment is three months and that during that period a foreign currency in question experiences a major unexpected appreciation or depreciation (say, 10-20%). Assume that the 3-month forward rate for a foreign currency is equal to its spot rate. Describe your choices for hedging and provide estimates of its benefits and costs.

Reference no: EM132415472

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