Farah Jeans of San Antonio, Texas, is completing a new assembly plant near Guatemala City. A final construction payment of Q8,400,000 is due in six months. ("Q" is the symbol for Guatemalan quetzals.) Farah Jeans uses 20% per annum as its weighted average cost of capital. Today's foreign exchange and interest rate quotations are:

Construction payment due in six-months (A/P, quetzals)...........8,400,000

Present spot rate (quetzals/$)..................................................7.0000

Six-month forward rate (quetzals/$).........................................7.1000

Guatemalan six-month interest rate (per annum).......................14.000%

U.S. dollar six-month interest rate (per annum) ..........................6.000%

Farah's weighted average cost of capital (WACC) ....................20.000%

Farah's treasury manager, concerned about the Guatemalan economy, wonders if Farah should be hedging its foreign exchange risk. The manager's own forecast is as follows:

Expected spot rate in six-months (quetzals/$):

Highest expected rate (reflecting a significant devaluation)..............8.0000

Expected rate...........................................................................................7.3000

Lowest expected rate (reflecting a strengthening of the quetzal) ........6.4000

What realistic alternatives are available to Farah for making payments? Which method would you select and why?