Prefabricated log cabins from Finland are very popular with homebuilders in the mountains of the western United States. A Flagstaff developer has just ordered one such cabin for a client. The terms of agreement are such that Honka Homes of Finland, the manufacturer, drew a six-month draft against a letter of credit issued by Wells Fargo Bank, Jos Angeles, on behalf of the Hagstaff developer in the amount of \(\$ 300,000\). After the cabin was shipped and all documentation completed, Honka Homes presented the draft to its local bank for forwarding to Los Angeles, where Wells Fargo Bank stamped ir "Accepted. Payable six months from today," dated the stamp May 10 (the current date), and returned it to Honka Homes of Finland.

Honka Homes has no immediate need for cash within its business but wants funds in six months to finance a seasonal expansion of its production linc. Honka Homes does not want to expose itself to any exchange risk. What should Honka Homes do: (You may ignore transaction cost and taxes.)

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Market rates today, the day of acceptance, are as follows: Spot exchange rate: Six-month forward exchange rate: Discount rate on six month curo denominated money $1.1000/ $1.1200/ market instruments: Discount rate on six month U.S. dollar bankers' acceptances Treasury bill rate in the United States Euro deposit rates available in Helsinki, six-month maturity 8% p.a 7% p.a. 6% p.. 5% pa.