Pavlov plc has just made a sale to an Australian customer for A$500 000, the payment to be made in three months’ time. The current exchange rate is £1 = A$2.6. Nominal interest rates for three months are 2 per cent in Australia and 3 per cent in the UK.

Pavlov plc is going to avoid transaction risk by using a money market hedge.

Describe, with exact figures, what action the business will take, and when it will take it, to achieve its objective. (Work to the nearest £ and/or A$.)