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Consider two companies that do business together, but do not share a common currency: an exporter and importer. The companies would like to design a contract to share real exchange rate risk. First, explain what is the reason behind the design of such a contract (i.e. what gives rise to this real exchange rate risk and how each party of the contract is exposed to this risk? You can give an example). How will such a contract look like (i.e. how does the nominal base price change with changes in the real exchange rate)?

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Financial Management, Finance

Category:- Financial Management
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