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Valero Inc., a computer manufacturer, needs to borrow $20 million for 3 months to finance working capital for its European subsidiary. Interest on the floating rate loan will be 150 basis points over 3-month LIBOR. LIBOR is currently 4.65%. Management is considering various hedging instruments to protect against rising interest rates: 1) A forward rate agreement fixes the rate at 4.45-4.90% for a 3-6 month period. 2) A call option on LIBOR gives the right to borrow at 4.70% with a $9,500 premium. 3) A put

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