Larkin Hydraulics.$$On May$1,$ Larkin$$ Hydraulics, a wholly owned subsidiary of Caterpillar$($U$.$S$.),$ sold a$12-$megawatt compression turbine to$$ Rebecke$-$Terwilleger Company of the Netherlands for euro$4$ comma $000$ comma $000,$ payable as euro$2$ comma $000$ comma $000$ on August $1$ and euro$2$ comma $000$ comma $000$ on November $1.$ Larkin derived its price quote of euro$4$ comma $000$ comma $000$ on April $1$ by dividing its normal U$.$S$.$ dollar sales price of $$$$4$ comma $080$ comma $000$ by the then current spot rate of $$$$1\mathrm{.}0200/$euro$.$

By the time the order was received and booked on May$1,$ the euro had strengthened to $$$$1\mathrm{.}0500/$euro$,$ so the sale was in fact worth euro $4$ comma $000$ comma $000$ times $ $1\mathrm{.}0500$ divided by euro equals $ $4$ comma $200$ comma $000.$ Larkin had already gained an extra $$$$120$ comma $000$ from favorable exchange rate movements.$$ Nevertheless, Larkin's director of finance now wondered if the firm should hedge against a reversal of the recent trend of the euro. Four approaches were$$ possible:

a$.$ Hedge in the forward$$ market: The$3-$month forward exchange quote was $$$$1\mathrm{.}0570/$euro and the$6-$month forward quote was $$$$1\mathrm{.}0650/$euro$.$

b$.$ Hedge in the money$$ market: Larkin could borrow euros from the Frankfurt branch of its U$.$S$.$ bank at $8\mathrm{.}39\%$ per annum.

c$.$ Hedge with foreign currency$$ options: August put options were available at strike price of $$$$1\mathrm{.}0500/$euro for a premium of $2\mathrm{.}0\%$ per$$ contract, and November put options were available at $$$$1\mathrm{.}0500/$euro for a premium of $1\mathrm{.}4\%.$ August call options at $ $1\mathrm{.}0500$ divided by euro could be purchased for a premium of $3\mathrm{.}0\%,$ and November call options at $$$$1\mathrm{.}0500/$euro were available at a $2\mathrm{.}8\%$ premium.

d$.$ Do$$ nothing: Larkin could wait until the sales proceeds were received in August and$$ November, hope the recent strengthening of the euro would$$ continue, and sell the euros received for dollars in the spot market.

Larkin estimates the cost of equity capital to be $13\%$ per annum. As a small$$ firm, Larkin Hydraulics is unable to raise funds with$$ long$-$term debt. U$.$S$.$ T$-$bills yield $3\mathrm{.}7\%$ per annum. What should Larkin$$ do$?$