The US firm for which you work owes 1,000,000 in one year. Below are the relevant prices and interest rates.

S = $1.18/ F = $1.16/

i$ = 3% i = 5%

a) What risk do you face with respect to the value of the ?

b) Based on the data provided, list the two methods you could use to perfectly hedge this risk.

c) Calculate the dollar cost in one year of each method, including all transactions, and determine which approach is better.