Trident Manufacturing, a US firm, has just signed a contract to sell agricultural equipment to Boschin, a German firm, for 1,250,000. The sale was made in June with payment due six months later in December.Because this is a sizable contract for the firm and because the contract is in Euros rather than dollars, Trident is considering several hedging alternatives to reduce the exchange rate risk arising from the sale.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

Trident's cost of capital is 11%

The Euro zone 6-month borrowing rate is 9% (or 4.5% for 6 months)

The Euro zone 6-month lending rate is 7% (or 3.5% for 6 months)

The U.S. 6-month borrowing rate is 8% (or 4% for 6 months)

The U.S. 6-month lending rate is 6% (or 3% for 6 months)

December put options for euro 625,000; strike price $1.42, premium price is 1.5%

Trident's forecast for 6-month spot rates is $1.43/euro

The budget rate, or the lowest acceptable sales price for this project, is $1,075,000 or $1.35/euro

Part 1.If Trident chooses to hedge its transaction exposure in the forward market, please specify the kind of forward contract it will enter. (contract size, terms, etc)