2. If Airbus decides to hedge using money market instruments, what action does Airbus need to take?...
Question:
2. If Airbus decides to hedge using money market instruments, what action does Airbus need to take? What would be the guaranteed euro proceeds from the American sale in this case?Airbus sold an A400 aircraft to Delta Airlines, a U.S. company, and billed $30 million payable in six months. Airbus is concerned about the euro proceeds from international sales and would like to control exchange risk. The current spot exchange rate is $1.05/€ and the six-month forward exchange rate is
$1.10/€. Airbus can buy a six-month put option on U.S. dollars with a strike price of €0.95/$ for a premium of €0.02 per U.S. dollar. Currently, six-month interest rate is 2.5 percent in the euro zone and 3.0 percent in the United States.
Step by Step Answer:
ISE International Financial Management
ISBN: 9781260575316
9th International Edition
Authors: Cheol Eun, Bruce Resnick, Tuugi Chuluun