Terry McDermott and Aidan. Aidan—the Irelandbased company discussed in this chapter—has concluded another large sale of telecommunications equipment to Regency (U.K.). Total payment of

£3,000,000 is due in 90 days. Terry McDermott has also learned that Aidan will only be able to borrow in the United Kingdom at 14% per annum (due to credit concerns of British banks). Given the following exchange rates and interest rates, what transaction exposure hedge is now in Aidan’s best interest?

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Assumption Value 90-day A/R in pounds 3,000,000.00 Spot rate, euro per pound (/) 1.0920 90-day forward rate, euro per 1.0750 pound (/) 3-month euro investment rate 6.000% 3-month euro borrowing rate 8.000% 3-month U.K. investment 8.000% interest rate 3-month U.K. borrowing 14.000% interest rate Aidan's WACC Expected spot rate in 90 days (/) Put options on the British pound: 12.000% 1.1000 Strike rate Premium (/) 1.07 1.500% 1.04 1.000%