Herd Co is based in a country whose currency is the dollar ($). The company expects to receive €1,500,000 in six months’ time from Find Co, a foreign customer. The finance director of Herd Co is concerned that the euro (€) may depreciate against the dollar before the foreign customer makes payment and she is looking at hedging the receipt.

Herd Co has in issue loan notes with a total nominal value of $4 million which can be redeemed in 10 years’ time. The interest paid on the loan notes is at a variable rate linked to LIBOR. The finance director of Herd Co believes that interest rates may increase in the near future.

The spot exchange rate is €1·543 per $1. The domestic short-term interest rate is 2% per year, while the foreign short-term interest rate is 5% per year.

As regards the interest rate risk faced by Herd Co, which of the following statements is correct?

A. In exchange for a premium, Herd Co could hedge its interest rate risk by buying interest rate options
B. Buying a floor will give Herd Co a hedge against interest rate increases
C. Herd Co can hedge its interest rate risk by buying interest rate futures now in order to sell them at a future date
D. Taking out a variable rate overdraft will allow Herd Co to hedge the interest rate risk through matching