1. Bankware, a Boston-based company specializing in banking-related softwares, exported its software for automatic teller machines (ATM) to Oslo Commerce Bank, which is trying to modernize its operation. Facing competition from European software vendors, Bankware decided to bill the sales in the client’s currency, Norwegian krone 500,000, payable in one year. Since there are no active forward currency markets for the Norwegian currency, Bankware is considering selling a euro or British pound amount forward for cross-hedging purpose. Assess the hedging effectiveness of selling the euro versus pound amount forward to cover the company’s exposure to the Norwegian currency. In solving this problem, consult exchange rate data available from the following website:

www.federalreserve.gov/releases/H10/hist. You may consult other websites.