1.Suppose on July 1st, 2003, Porsche expected $1 million sales from the U.S. at the end of July. On July 1st, 2003, the spot exchange rate was $1.1362/, the 30-day forward exchange rate was $1.1400/, and the 60-day forward exchange rate was $1.1450/. Porsche predicted that by the end of July, the spot exchange rate would be $1.1390/ and the 30-day forward exchange rate would be $1.1460/. Porsche also predicted that during August, 2003, the U.S. would have a monthly interest rate at 4% and inflation rate at 1%, while Euro zone would have a monthly interest rate at 5% and inflation rate at 3%.

Which of the following strategies will generate the most for Porsche at the end of August? Show me your work without looking to find an answer from Chegg.

(A)Porsche should convert the $1 million to right away at the end of July.

(B)Porsche should hedge the $1 million sales through the 30-day forward contract on July 1st, 2003.

(C)Porsche should hedge the $1 million sales through the 60-day forward contract on July 1st, 2003.

(D) Porsche should hedge the $1 million sales through the 30-day forward contract on July 31st, 2003.