Suppose GE was awarded a contract to supply a manufacturer in Germany with turbine blades. Payment to GE is due in 6 months for euro 2,500,000. Because this is a sizable contract for the firm and because the contract is in euros rather than dollars, GE is considering several hedging alternatives to reduce the exchange rate risk. To help the firm make a hedging decision you have gathered the following information. - The spot exchange rate is $1.40/euro - The six month forward rate is $1.38/euro - The Euro zone 6-month borrowing rate is 4.5% - The Euro zone 6-month investing rate is 3.5% - The U.S. 6-month borrowing rate is 4% - The U.S. 6-month investing rate is 3% - December call options for euro 625,000; strike price $1.42, premium price is 1.5% - December put options for euro 625,000; strike price $1.40, premium price is 1.3% - GE's forecast for 6-month spot rates is $1.43/euro

If GE used option hedging, what option should it be? How much in dollar would GE have to pay for the option premium today?

Group of answer choices

Put option; $45,500

Call option; $37,500

Put option; $32,500

Call option; $26,786