John Deere’s Chinese acquisition. The U.S. farming equipment giant just won approval from the Chinese authorities for the acquisition of Shen-Zhen Excavators Ltd.—a medium-sized Chinese manufacturer of small earthmoving equipment

(Bobcat style)—for yuan (CNY) 615 million with payment due in six months.

The current spot and six-month forward rates are respectively CNY 6. 75 =

US$1 and CNY 6. 50 = US$1. Hong Kong and Shanghai Bank’s currency desk further advises John Deere that over-the-counter six-month European put and call options are available at respective premiums of 2. 4 percent and 3 percent for a strike price equal to the forward rate. Interest rates in CNY and US$ are, respectively, 10 percent and 4 percent on an annual basis. Sketch John Deere’s alternative hedging options. What would be your recommendation given that the Chinese currency is heavily stabilized by the Bank of China?