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Lehigh Valley Transit Inc. (LVT) has signed a contract to purchase light rail cars from Alstom, a French rail car manufacturer, for 15,000,000. The purchase order was placed in November 2020 with payment due six months later in May 2021. The fact that this is a sizable contract for LVT and because the payable is denominated in euros, rather than dollars, LVT 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 today is: $1.2000 per 1

The six month forward rate is: $1.1800 per 1

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

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

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

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

May 2021 call options for 15,000,000; strike price $1.2000, premium is 1.5%

LVT's forecast for the spot rate in 6 months is: $1.1700 per 1

The budget rate, or the highest acceptable purchase price for this project, is $18,600,000 or $1.2400 per 1

If LVT chooses to hedge its transaction exposure in the forward market, what rate will it pay for the euros and how many USD will be required to purchase the euros at the forward rate?

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