A US importer has a contractual obligation to purchase 5,000,000 of raw materials in one year from now. The CFO wants to hedge the currency risk by using a money market hedge. Further, he does not want to use any of the companys current cash to enact this hedge (i.e. he wants to borrow money from either a US bank or a European bank). He asks you to put together an analysis, and lay out the steps to hedge the euro exposure. The current spot rate is $1.1/, the one year risk free interest rates are 3% and 1.5% in the US and Europe, respectively. The forward rate is $1.13/. (Show calculations and steps)

a. Is your company long or short euro?

b. From which bank (US or European) should your company take out a loan?

c. What do you do with those loan proceeds to hedge your companys exposure?