Bombardier’s exports receivables (A). Bombardier—Canada-based defense contractor—signed a sales contract for the delivery by the end of 2008 of five Dash 8 twin-engine turboprops to Alaska Airlines for the sum of US$75 million.

It was November 2, 2007, and the Canadian dollar (CAD) had just hit another record—jumping to CAD 1 = US$1.0717. Indeed the Canadian dollar, fueled by the high price of commodity exports (primarily oil), had been the bestperforming currency for the year, appreciating by 25 percent against the U.S.

dollar. One-year forwards were currently quoted at CAD 0. 9386/0.9409 = US$1 whereas the spot exchange rate stood at CAD 0. 9344/0.9351.

a. Is the U.S. dollar at a premium or discount vis-à-vis the Canadian dollar?

b. What is the nature of Bombardier’s exposure to foreign exchange risk?

c. How can Bombardier hedge its dollar exposure? Illustrate your answer graphically.