Multinational corp finance

Multinational corp finance
On June 1, Northwind Energy, a wholly owned subsidiary of GE, bought a 12 megawatt compression turbine from Groningen Engineering of the Netherlands for ���4,000,000,
payable on September 1. The Northwind purchasing team received this price quote of ���4,000,000 on May 1 where the current spot rate was $1.0800/���, which equates to the
U.S. dollar price of $4,320,000.
By the time the purchase was made on June 1, the euro had strengthened to $1.1000/���, so
the purchase was in fact worth ���4,000,000 x $1.1000/��� = $4,400,000. Northwind had already lost an extra $80,000 from the unfavorable exchange rate movements. With
this, Northwind���s director of finance now wondered if the firm should hedge against more fluctuation in the exchange rate.
Three approaches were possible:
1) Hedge in the forward market. The three-month forward exchange quote was $1.1060/���.
2) Hedge in the money market. Northwind could borrow U.S. dollars from its U.S. bank at 7.00% per annum. The EU investment rate is 6.00% per annum.
3) Hedge with foreign currency options. September put options were available at strike price of $1.1000/��� for a premium of 3.0% per contract. September call options at
$1.1000/��� could be purchased for a premium of 2.0%.
Discuss if Northwind should hedge its
transaction exposure of EUR 4,000,000. If you recommend that the company should hedge, which of the hedging alternatives would better serve Northwind shareholders?