(4) Suppose you are an importer of Brazilian coffee. You expect to import 100,000 pounds of coffee in 6 months. Payment

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(4) Suppose you are an importer of Brazilian coffee. You expect to import 100,000 pounds of coffee in 6 months. Payment

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(4) Suppose you are an importer of Brazilian coffee. You expect
to import 100,000 pounds of coffee in 6 months. Payment in
Brazilian Real is due in 6 months and will be based on the price of
coffee at that time. You project the following five scenarios with
regards to the price of coffee in 6 months:
Scenario

Price (Real/pound of
coffee)
a) What will you do today to hedge this Real-exposure? (Hint:
use forwards and options on the Real)
b) Suppose that after 6 months scenario #4 materializes. What
would you do?
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