Farah Jeans of San Antonio, Texas, is completing a new assembly plant near Guatemala City. A final construction payment of Q8,900,000 is due in six months. ("Q" is the symbol for Guatemalan quetzals.) Farah uses 17.00% per annum as its weighted average cost of capital. Today's foreign exchange and interest rate quotations are as follows: LOADING... . Farah's treasury manager, concerned about the Guatemalan economy, wonders if Farah should be hedging its foreign exchange risk. The manager's own forecast is as follows: LOADING... .

Construction payment due in 6 months (A/P, quetzals)	8,900,000
Present spot rate (quetzals/$)	6.85
6-month forward rate (quetzals/$)	6.98
Guatemalan 6-month interest rate (per annum)	14.00%
U.S. dollar 6-month interest rate (per annum)	6.50%
Farah's weighted average cost of capital (WACC)	17.00%

Expected spot rate in 6-months (quetzals/$):
Highest expected rate (reflecting a significant devaluation)	8.03
Expected rate	7.26
Lowest expected rate (reflecting a strengthening of the quetzal)	6.48

a. How much in U.S. dollars will Farah Jeans pay in 6 months without a hedge if the expected spot rate in 6 months is Q8.03/$? Q7.26/$? Q6.48/$?

b. How much in U.S. dollars will Farah Jeans pay in 6 months with a forward market hedge?

c. How much in U.S. dollars will Farah Jeans pay in 6 months with a money market hedge?

d. Which method would you select and why?