XYZ Ltd, a UK firm has bought goods from a US supplier and most pay US$ 4 million in 3 months time. The company finance director wishes to hedge against the foreign exchange risk and is considering 3 methods: i) Using the forward exchange contract ii) Using currency option Amrtual interest rate and foreign exchange rate are given below: US $ Deposit Rate 1 month 3 months 7% 7% Borrowing Rate 10.25% 10.75% UK Deposit Rate Borrowing Rate 10.75% 14.0% 11.4% ." 14.25% Spot rate 1.8625 -1.8635 1 month forward 0.60.-0.58 cts premium 3 months forward 1.80,-1.75 cts premium A 3 month currency option to sell US$4 million at an exchange rate of 1: 1.8625 -1.8635 is currently costing 40 000. Required Advice the company on the cheapest method to use. XYZ Ltd, a UK firm has bought goods from a US supplier and most pay US$ 4 million in 3 months time. The company finance director wishes to hedge against the foreign exchange risk and is considering 3 methods: i) Using the forward exchange contract ii) Using currency option Amrtual interest rate and foreign exchange rate are given below: US $ Deposit Rate 1 month 3 months 7% 7% Borrowing Rate 10.25% 10.75% UK Deposit Rate Borrowing Rate 10.75% 14.0% 11.4% ." 14.25% Spot rate 1.8625 -1.8635 1 month forward 0.60.-0.58 cts premium 3 months forward 1.80,-1.75 cts premium A 3 month currency option to sell US$4 million at an exchange rate of 1: 1.8625 -1.8635 is currently costing 40 000. Required Advice the company on the cheapest method to use