A French company exporting to the USA expects $1 million from various customers in 30 days’ time….

A French company exporting to the USA expects USA expects $1 million million from various customers in 30 days’ time. The company’s Treasurer seeks to eliminate the resulting exposure to changes in the US$^euro exchange rate. There are at least two possibilities. The first is to sell the dollars in the forward exchange market at $0.8817/€. The second is to borrow the dollars immediately at 17/8 % (divide by 12 for the 30-day rate) and convert them to euros at the current spot rate current spot rate $0.8829/€. The corresponding one-month euro rate is 31/4 %. Which of the two methods of hedging the exposure has the least cost?

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