PrimeGarden plc is a British stationery manufacturer, which has various suppliers and customers across Europe. The company needs to make a payment of 1,000,000 EUR in three months' time (90 days) against the raw materials it has purchased from suppliers across Europe. The company is worried about the fall in the value of pound (GBP) against the Euro (EUR).

At present the following market prices prevail:

• Spot price EUR/GBP: EUR 1.00 = GBP 0.8915
• Consider the following 3-month (180 day) money market rates:
• 2% per annum to borrow or lend GBP
• 4% per annum to borrow or lend EUR

Given the above situation, answer the following questions:

What types of foreign exchange risk is the company PrimeGarden exposed to and in what ways can it hedge these risks?