Ford Simultaneously Borrows Spanish Pesetas at 13% and Invests Dollars

Multiple Choice

Ford simultaneously borrows Spanish pesetas at 13% and invests dollars at 10%, both for one year. At the time Ford enters into these transactions, the spot rate for the peseta is $0.095. If the spot rate is Ptas. 1 = $0.087 in one year, what is the cost to Ford of this money market hedge?

A) 2.0%
B) 3.8%
C) 1.3%
D) Ford has a 6.5% gain, not a cost