Hedging the Economic Exposure
Tim Cook remains concerned about his exposure to exchange rate risk. Even if Tim hedges his
transactions from 1 month to another, he recognizes that a long-term trend of depreciation in the British
pound could have a severe impact on this firm. He believes that he must continue to focus on the British
market for selling his footballs. However he plans to consider various ways in which he can reduce his
economic exposure. At the current time, he obtains material from a local manufacturer and uses a
machine to produce the footballs, which are then exported. He still uses his garage as a place of
production and would like to continue using his garage to maintain low operating expenses.