Ford company just signed a contract to sell 1000 cars to a businessman in France. The businessman will be billed 10 million which is payable in one year. The current spot exchange rate is $1.05/ and the one-year forward rate is $1.18/. The annual interest rate is 7.0% in the U.S. and 6.0% in France. Ford is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure.

(a) It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Credit Lyonnaise against the euro receivable. Which alternative would you recommend?

(b) Other things being equal, at what forward exchange rate would Ford be indifferent between the two hedging methods