ABC is a US company that just bought goods from a french company for 600 million euros with payment due in 4 months. Assume the following:

Spot Rate: $1.30/

4 month forward rate: $1.31/

4 month French interest rate: 8% p.a.

4 month US interest rate: 6% p.a.

4 month call option on euros at a strike price of $1.29/ with a 3% premium

4 month put option on euros at a strike price of $1.305/ with a 4% premium

A) How can ABC hedge this risk?

B) Which alternative would you choose and why?

C) Does the French company have any transaction risk as a result of this deal? (start your answer with YES or NO)

D) What is the breakeven exchange rate between the forward market hedge and your option alternative (the one you used in Part A)?