ABC plc is a company based in the UK. It has to pay a German supplier 90,000 euros in three months time. The companys finance director wishes to avoid exchange rate exposure, and is looking at four options.

1. Do nothing for three months and then buy euros at the spot rate
2. Borrow in the UK and buy 90,000 euros now, put them on deposit in Germany for three months. In three months' time, withdraw the deposit, pay the German supplier and convert the accumulated interest on the euros back to pounds to pay the interest on the UK borrowing
3. Enter a forward exchange contract to buy the euros in three months time at a price agreed today
4. Pay in full now, buying euros at todays spot rate

Which of the following options would provide cover against the exchange rate exposure that ABC plc would otherwise suffer?

Select one:

4 only

2, 3 and 4 only

1, 2, 3 and 4

2 and 3 only