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Comparative Advantage

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Suppose France is trading 600 units of wine to Germany for 300 machines at a relative price of 2 wine per machine. Merchants sign contracts three months before payments are made, and all merchants wish to hedge exchange risk. Describe completely all forward exchange transactions that take place when the contracts are made. Describe what actually takes place three months later.

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This solution is comprised of a detailed explanation to describe what actually takes place three months later.

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Suppose France is trading 600 units of wine to Germany for 300 machines at a relative price of 2 wine per machine. Merchants sign contracts three months before payments are made, and all merchants wish to hedge exchange risk. Describe completely all forward exchange ...

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