Refer to figure.

QNH. The atmospheric pressure adjusted to mean sea-level. If you are on the ground at an airport and turn in the local QNH at your altimeter’s subscale, it will display the airports altitude above mean sea level.
QFE. The pressure set on the altimeter so that it indicates the height above the reference elevation being used (height above current ground level). If you set the QFE on your altimeter’s subscale on the ground, the altimeter would read 0 feet. So, it is used to get to know the height above the ground.

In the case of this specific question: We need to figure out which of these conditions would give the highest QNH.

QNH gives the elevation of the airport from mean seal level. QFE set on the altimeter on the ground would give an indication of 0 feet. QNH will always be a higher value than QFE as long as the airport is above mean sea level.
Assuming a barometric lapse rate of 27 ft/hPa:

(1) QFE of 1003 hPa, elevation 1200 feet.
To calculate the QNH we have to divide 1200 by 27 ft/hPa

• 44 hPa and then add this to the QFE of 1003 hPa = 1047 hPa

(2) QFE of 1000 hPa, elevation 1200 feet.
To calculate QNH we have to divide 1200 by 27 ft/hPa

• 44 hPa and then add this to the QFE of 1000 hPa = 1044 hPa

(3) QFE of 995 hPa, elevation of 1200 feet.
To calculate QNH we have to divide 1200 by 27 ft/hPa

• 44 hPa and then add this to the QFE of 995 hPa = 1039 hPa

(4) QFE of 995 hPa, elevation of 1600 feet.
To calculate QNH we have to divide 1600 by 27 ft/hPa

• 59 hPa and then add this to the QFE of 995 hPa = 1054 hPa

=> A QFE of 995 with an elevation of 1600 feet will give the highest QNH indication.

Note: According to the new syllabus (EASA 2020) a barometric lapse rate of 30 ft /hPa should be used. However, if the question text indicates a different lapse rate, that is the one you are expected to use.