Your firm is a U.K.-based exporter of British bicycles.You have sold an order to an Italian firm for €1,000,000 worth of bicycles.Payment from the Italian firm (in €)is due in twelve months.Your firm wants to hedge the receivable into pounds.Not dollars.Interest rates are 3% in €,2% in $ and 4% in £. Detail a strategy using spot exchange rates and borrowing or lending that will hedge your exchange rate risk.
A.Borrow €970,873.79 in one year you owe €1m, which will be financed with the receivable.Convert €970,873.79 to dollars at spot, receive $1,165,048.54.Convert dollars to pounds at spot, receive £728,155.34.
B.Sell €1m forward using 16 contracts at $1.20 per €1.Buy £750,000 forward using 12 contracts at $1.60 per £1.
C.Sell €1m forward using 16 contracts at the forward rate of $1.29 per €1.Buy £750,000 forward using 12 contracts at the forward rate of $1.72 per £1.
D.None of the above

Question

Your firm is a U.K.-based exporter of British bicycles.You have sold an order to an Italian firm for €1,000,000 worth of bicycles.Payment from the Italian firm (in €)is due in twelve months.Your firm wants to hedge the receivable into pounds.Not dollars.Interest rates are 3% in €,2% in $ and 4% in £.  Detail a strategy using spot exchange rates and borrowing or lending that will hedge your exchange rate risk. 
A.Borrow €970,873.79 in one year you owe €1m, which will be financed with the receivable.Convert €970,873.79 to dollars at spot, receive $1,165,048.54.Convert dollars to pounds at spot, receive £728,155.34.
B.Sell €1m forward using 16 contracts at $1.20 per €1.Buy £750,000 forward using 12 contracts at $1.60 per £1.
C.Sell €1m forward using 16 contracts at the forward rate of $1.29 per €1.Buy £750,000 forward using 12 contracts at the forward rate of $1.72 per £1.
D.None of the above

Quizplus · Accepted Answer

The Answer of Your firm is a U.K.-based exporter of British bicycles.You have sold an order to an Italian firm for €1,000,000 worth of bicycles.Payment from the Italian firm (in €)is due in twelve months.Your firm wants to hedge the receivable into pounds.Not dollars.Interest rates are 3% in €,2% in $ and 4% in £.  Detail a strategy using spot exchange rates and borrowing or lending that will hedge your exchange rate risk. 
A.Borrow €970,873.79 in one year you owe €1m, which will be financed with the receivable.Convert €970,873.79 to dollars at spot, receive $1,165,048.54.Convert dollars to pounds at spot, receive £728,155.34.
B.Sell €1m forward using 16 contracts at $1.20 per €1.Buy £750,000 forward using 12 contracts at $1.60 per £1.
C.Sell €1m forward using 16 contracts at the forward rate of $1.29 per €1.Buy £750,000 forward using 12 contracts at the forward rate of $1.72 per £1.
D.None of the above

Your Firm Is a U