Dealing with Currency Fluctuation
1. X and Y are foreign exchange traders in Germany. X agreed to sell 100 million Mexican pesos to Y for delivery within one week at an agreed-upon price in German marks. X was three days late in making delivery. During those three days, the Mexican government acted to devalue the Mexican peso by 20 percent. Y now sues in a German court to have the contract set aside. Will Y be successful? Explain.
2. X in State A and Y in State B plan to enter into a contract. What can they do to avoid the impact of a fluctuation in the value of their money of account?