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Delta Airlines has just signed a contract to purchase some A 3 2 0 planes from Airbus for 1 0 0 , 0 0 0

Delta Airlines has just signed a contract to purchase some A320 planes from Airbus for 100,000,000 euros. The payment is due six months or 180 days later. You are in the Treasury department of Delta Airlines and need to make a recommendation to the Treasurer regarding how best to hedge the exchange rate risk of this transaction. You have gathered the following information:
The spot exchange rate is $1.2000/. That is to say, 1 euro =1.2000 US dollars
The six-month forward rate is $1.2100/
The companys cost of capital is 10% per annum.
The euro 6-month borrowing rate is 4% per annum (or 2% for 6 months)
The euro 6-month lending rate is 2% per annum (or 1% for 6 months)
The US dollar 6-month borrowing rate is 5% per annum (or 2.5% for 6 months)
The US dollar 6-month lending rate is 3% per annum (or 1.5% for 6 months)
The premium on six-month call options on the euro with strike price $1.2100 is 2%
Suppose Delta Airlines chooses a money market hedge. Spell out the transactions that the firm will need to undertake to implement this hedge. What is the total cost in dollars using this hedge

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