You have finalized two international transactions for your company, based in the United States. In the first transaction, your company entered into an agreement to buy materials from a supplier in Country A at a price fixed in Country A’s currency. In the second transaction, your company agreed to sell finished products to a foreign customer in Country B at a price fixed in Country B’s currency. For each transaction, payment is due on delivery of the materials and finished products, respectively, in one year.
Describe two hedging strategies using financial derivative instruments that will eliminate the foreign exchange risk in these two transactions.