Suppose that the U.S. firm Alcoa sells $2 million worth of aluminum to a British firm. If the exchange rate is currently $1.50 = £1 and the British firm will pay Alcoa £1,333,333.33 in 90 days, answer the following questions.
a. What exchange-rate risk does Alcoa face in this transaction?
b. What alternatives does Alcoa have to hedge this exchange-rate risk?
c. Give a specific example of how Alcoa could hedge this exchange-rate risk.