. What is hedging? What are the benefits and costs of hedging?

nn1. What is hedging? What are the benefits and costs of hedging?nn2. Provide some specific examples (other than the articles I provided) of how firms have chosen to hedge using futures or forward contracts. This could possibly include agricultural operations as well. Be sure to identify the risk the firm is trying to control.nn3. Over the last couple of decades the Euro has been as low as $0.85 and as high as $1.51. It is currently at $1.10. How do currency movements affect Porsche’s profitability? Give a detailed example using a single, new Porsche 911. You are welcome to come up with your own estimates of selling price. Use realistic currency fluctuations and time periods for manufacturing and selling a car.nn4. Hedging vs Speculatingnna. What is a speculator in the context of futures markets?nnb. Are speculators bad for the futures markets or our economy?nnc. At what point does Porsche move from being a hedger and become a speculator?nnd. As a stockholder, how would you react to Porsche speculation?nn5. Porsche is expected to sell approximately 60,000 cars in the U.S. in 2019. I’ll let you estimate an average selling price across Porsche models. For this example, let’s assume that all the sales happen in December of 2019. Also, assume that Porsche has fully hedges their U.S. dollar exposure (based on predicted sales) using futures or forward contracts at a rate of $1.10 per Euro. What happens in the following situations:nna. the Dollar/Euro exchange rate remains unchanged and sales are as predictednnb. the Euro rises against the Dollar and the exchange rate moves to $1.00 per Euro. Sales are as predicted.nnc. the Euro falls against the Dollar and the exchange rate moves to $1.25 per Euro. Sales are as predicted.nnd. the Euro rises against the Dollar and the exchange rate moves to $1.00 per Euro. Sales are 20% higher than expected.nnd. the Euro rises against the Dollar and the exchange rate moves to $1.00 per Euro. Sales are 20% lower than expected.nnBe specific in your answers. Where does Porsche lose money, and how much? Where does Porsche make money and how much? What is the overall effect on Porsche’s income in their home currency? FYI, you can make the Euro currency symbol in Word by using CRTL + ALT + E.nn