John Deere Manufacturing has just signed a contract to sell agricultural equipment to Bosch, a German firm, for euro 1.250.000. The sale was made in June with payment due six months lather in December. Because this is a sizable contract for the firm and becuase the contract is in euros rather than dollars. Plains States is considering several hedges alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have the following information for propose the best alternative an explore the possible hedge strategies. The spot exchange rate is $1.4050/euro. The six month forward rate is $1.4550/euro. Cost of capital is 11% The annual euro zone 6-month borrowing rate for the firm is 9% The annual euro zone 6-month lending rate for the firm is 7% Their annual USA 6-month borrowing rate is 8% Their annual USA 6-month lending rate is 6%. December put option contract for euro 625,000 has a strike price of $1,42, premium price is 1,5% Their own internal forecast for 6-month spot rates is $1.43/euro