Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed €20.08 million payable in one year. The current spot exchange rate is $1.05/€ and the one-year forward rate is $1.10/€. The annual interest rate is 6 percent in the United States and 5 percent in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. a. It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Crédit Lyonnaise against the euro receivable. Which alternative would you recommend? Forward hedge Money market hedge Recommend alternative Forward hedge b. Other things being equal, at what forward exchange rate would Boeing be indifferent between the two hedging methods? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Forward exchange rate

Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed €20.08 million payable in one year. The current spot exchange rate is $1.05/€ and the one-year forward rate is $1.10/€. The annual interest rate is 6 percent in the United States and 5 percent in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. a. It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Crédit Lyonnaise against the euro receivable. Which alternative would you recommend? Forward hedge Money market hedge Recommend alternative Forward hedge b. Other things being equal, at what forward exchange rate would Boeing be indifferent between the two hedging methods? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Forward exchange rate

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter10: Measuring Exposure To Exchange Rate Fluctuations

Section: Chapter Questions

Problem 2ST

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Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed €20.18 million payable in one year. The current spot exchange rate is $1.11 per euro and the one-year forward rate is $1.16 per euro. The annual interest rate is 12 percent in the United States and 11 percent in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. Required: a. It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Crédit Lyonnaise against the euro receivable. Which alternative would you recommend? b. Other things being equal, at what forward exchange rate would Boeing be indifferent between the two hedging methods? Complete this question by entering your answers in the tabs below. Required A Required B It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Crédit Lyonnaise against…
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