A French importer is buying automobile parts from a German manufacturer.
The payment is to be made in German marks within 30 days. The importer can
1. hedge against a depreciation of the franc in
terms of the mark by selling francs for marks forward 30 days.
2. hedge against a depreciation of the franc in
terms of the mark by selling 30 day French Treasury bills, converting the
funds into marks, and investing them in 30 day German Treasury Bills.
3. cover her position by doing either of the above.
Choose the option that yields the correct answer.