You are an analyst for a large International Food Distributor. Your firm exports to several countries including European nations. You have just signed a deal to ship bananas to a Dutch importer. Your accounts are denominated in US dollars and this deal is denominated in Euros. You will receive euros 700,000 when the goods arrive in Amsterdam in 30 days. Assume that you can borrow and lend at 4% p.a. in U.S. dollars and at 6% p.a. in euros. Both interest rate quotes are for a 360-day year. The spot exchange rate is $1.14/euro, and the 90-day forward exchange rate is $1.13/.

Using this information, answer parts A, B, C and D below.

D. Assume that the dollar interest rate and the exchange rates are correct. Determine what euro interest rate would make your firm indifferent between the two alternative hedges.