(14 points) You are a U.S. custom jewelry retailer importing goods from France. For the shipment of goods you recently received, you are expected to pay 1,000,000 Euros ( ) to the supplier in 3 months' time. To encourage you to pay now, the supplier is offering a 2% discount to the invoice amount. The current spot rate is US\$1.18/. a) The 3-month forward rate is US\$1.19/. You can borrow for 3 months in the U.S. at the annual spot interest rate of 6%. Will you borrow money to pay now or pay in 3 months, hedging your currency risk with a forward contract? (8 points) b) You are also evaluating the possibility of hedging your transaction exposure with call options on Euro. The premium is US\$0.02/Euro and the exercise price is US1.19/Euro. If the option is exercised, what is the total dollar amount paid after accounting for the premium? (Ignore all other transaction costs and the time value of the money for the premium paid.)