nstruction$10\mathrm{.}1$:

Use the information for the following$$ problem$($s$).$

Central Valley Transit Inc.$($CVT$)$ has just signed a contract to purchase light rail cars from a manufacturer in Germany for euro$3,000,000.$ The purchase was made in June with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in euros rather than$$ dollars, CVT is considering several hedging alternatives to reduce the exchange rate risk arising from the purchase. To help the firm make a hedging decision you have gathered the following information.

$.$ The spot exchange rate is$$ $$1\mathrm{.}250/$euro

$.$ The sixminusmonth forward rate is$$ $$1\mathrm{.}22/$euro

$.$ CVT$\text{'}$s cost of capital is$11\%$

$.$ The Euro zone $6$minusmonth borrowing rate is$9\%($or$4\mathrm{.}5\%$ for $6$ months$)$

$.$ The Euro zone $6$minusmonth lending rate is$7\%($or$3\mathrm{.}5\%$ for $6$ months$)$

$.$ The U$.$S$.6$minusmonth borrowing rate is$8\%($or$4\%$ for $6$ months$)$

$.$ The U$.$S$.6$minusmonth lending rate is$6\%($or$3\%$ for $6$ months$)$

$.$ December call options for euro$750,000$; strike price$$ $$1\mathrm{.}28,$ premium price is$1\mathrm{.}5\%$

$.$ CVT$\text{'}$s forecast for $6$minusmonth spot rates is$$ $$1\mathrm{.}27/$euro

$.$ The budget$$ rate, or the highest acceptable purchase price for this$$ project, is$$ $$3,900,000$ or$$ $$1\mathrm{.}30/$euro

Refer to Instruction $10\mathrm{.}1.$ If CVT chooses to hedge its transaction exposure in the forward$$ market, it will$\_\_\_\_\_\_\_\_$ euro$3,000,000$ forward at a rate of$\_\_\_\_\_\_\_\_.$