A US exporter will receive 30 million Norwegian kroner (NOK) in 3 months and wishes to hedge the US dollar (USD)-NOK exchange rate. Assume that there is no active forward market in NOK. Therefore, the company decides to hedge using a forward contract on a foreign currency whose price changes are highly correlated with those of NOK. It decides to use a forward contract on the euro (EUR).

The standard deviation of quarterly changes in the USD/NOK exchange rate is 0.005. The standard deviation of quarterly changes in the USD/EUR forward rate is 0.025. The correlation between the quarterly changes in the USD/NOK exchange rate and the quarterly changes in the USD/EUR forward rate is 0.85. What is the optimal number of euros to be delivered in the short forward contract according to the minimum variance hedge ratio?

Select one:

a.4.90 million euros

b.4.95 million euros

c.5.00 million euros

d.5.05 million euros

e.5.10 million euros