Question:
Suppose that a Swiss watchmaker imports watch components from Sweden and exports watches to the United States. Also suppose the dollar depreciates, and the Swedish krona appreciates, relative to the Swiss franc. Speculate as to how this would hurt the Swiss watchmaker.
Suppose Winter Sports?a hypothetical French retailer of snowboards?wants to order 5,000 snowboards made in the United States. The price per board is $200, the present exchange rate is 1 euro = 1 dollar, and payment is due in dollars when the boards are delivered in three months. Use a numerical example to explain why exchange rate risk might make the French retailer hesitant to place the order. How might speculators absorb some of Winter Sports' risk?