HELPemergencyplease help me answer this question. Thanks a million.

about Foreign Exchange Risk Management

Company C is an Irish hotel business with several hotels in Ireland, Italy, and France.

It is about to begin work on several new hotels in the UK. It will build these on sites acquired in Manchester, Glasgow, and Cardiff.

It has retained a UK-based project management company to oversee the construction projects. The project management company is responsible for overseeing construction, dealing with construction companies, and ensuring compliance with regulations and legal requirements.

The project management company will charge Company C a single project cost for the delivery of the three hotels. The total that Company C must pay to the project management company is GBP 30million. This is payable in instalments over the next two years.

Construction will begin on each new hotel in April 2021. The planned completion date is the end of August 2022. Company C has agreed the following payment plan with the project management company.

Date (Final Day of the Month)	Amount (GBP)
April 2021	5m
July 2021	4m
September 2021	2m
December 2021	3m
June 2022	5m
August 2022*	11 m*

All of these payments will be due on the dates specified even if COVID19 restrictions delay construction. The only exception is the final payment which will not be made until the completion certificate is presented and the completed hotels are handed over to company C for guests.

If the final completion is delayed beyond August 2022 the project management company payment will be reduced by GBP250,000 for each month of delay, subject to a maximum of GBP 5million.

If company C is late paying any of the instalments it must pay a penalty of GBP200,000 for each month, or part of a month, that the payment is delayed.

Company Cs Finance Director is concerned at the potential for adverse movements in Sterling that would effectively increase the cost of the hotels. She says that they have budgeted based on EUR/GBP 0.9100. The following are indicative current forward points.

EUR/GBP Spot and Forward Points
Spot	0.8980/95	9 months	48/62
1 month	5/7	12 months	71/79
2 months	9/13	15 months	79/112
3 months	16/18	18 months	110/145
4 months	20/26	24 months	148/173
5 months	28/31
6 months	31/39

You have received the following indicative premiums for a Sterling call option at a strike price of 0.9100: July 2021 3%; September 2021 3.4%; December 2021 4%; June 2022 4.5%; August 2022 5.5%. The premium is a percentage of the notional principal.

As a rule of thumb you are informed that setting a strike price at each additional penny out of the money will reduce the option premium by 0.2% subject to a minimum premium of 2%. Setting a strike price at each additional penny in the money will increase the option premium by 0.3% with no maximum premium.

What is your expectation for the EUR/GBP exchange rate over the life of the project? Justify your answer. Based on your view of the EUR/GBP rate and the business commercial position, advise the Finance Director on an appropriate hedging strategy.