3. Many businesses have revenue that is sensitive to weather. In cases like these the businesses could hedge their risk using weather derivatives. Discuss an example of a weather derivative and how it is used by companies to mitigate risk. (20 points)
4. A US company knows it will have to pay 50 million Yen in three months to a supplier. The current exchange rate is 0.1500 Dollars per Yen. Discuss how forward and options contract can be used by the company to hedge its exposure to exchange rate risk. (10 points)