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Suppose that Daimler AG, which manufacturers Mercedes-Benz automobiles, sells 5 million worth of automobiles to U.S. importers. If the current exchange rate is $1.22 = 1, and Daimler agrees to accept payment of $6.1 million in 90 days, answer the following questions.

a. What exchange-rate risk does Daimler face?

b. What alternatives does Daimler have to hedge this exchange-rate risk?

c. Give a specific example of how Daimler could hedge this exchange-rate risk.

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