Camdi plc is a large UK based company that manufactures construction equipment. The company has just arranged to supply a French customer with a consignment worth $60 million. Payment for the transaction is expected in 3 months time but management is worried that movements in exchange rates between the GB and the $ will create transaction exchange risk. To manage this risk, a trainee in the treasury department at Camdi plc has collected the following details.

The three month forward rates between the GB and the $ is 1: $1.08. The rates of interest in the UK and France for a period of three months are:

UK Rate (%) = 0.2 France Rate (%) = 0.4

Note that their local bank will charge an administration fee of 0.1% of the $ value of the transaction.

Finally, over the counter option contracts with a three month maturity have an exercise price of $1.074 and the premium on the contract is 1.5 cents per 1.

The current spot rate is 1: $1.078 and the actual spot rate in six months time materialises to be 1: $1.09.

Required:

Determine the value of the home currency receipts for each of the three hedging approaches considered by the company and identify the optimal option for the benefit of management.