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Dozier Industries

Please show exactly how you came up with the answer to each of the quantitative questions below. Show your work. Show the formulas you used to get each value. If you attach a printout from an Excel spreadsheet, please label exactly what formula you are using to get each value.

Questions

1. What is Dozier’s foreign exchange exposure? That is, what exchange rate movements might hurt them?

2. At what exchange rate will Dozier’s entire profit be wiped out?

3. Describe how Dozier could hedge this exposure with a forward contract. Be specific and include the correct numbers.

4. Describe how Dozier could hedge this exposure by borrowing pounds. Again, be specific and include the correct numbers.

5. Would Dozier be better served by hedging its exposure with a forward contract or by borrowing pounds? Why?