Airbus sold an A$400$ 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 $1\mathrm{.}05$ $$/$euro and the six$-$month

forward rate exchange rate is $1\mathrm{.}10$ $$/$euro$.$ Airbus can buy a six$-$month put option on U$.$S$.$ dollars

with a strike price of $0\mathrm{.}95$ euro$/$$ for a premium of $\mathrm{.}02$ euro per U$.$S$.$ dollar. Currently, the six$-$

month interest rate is $2\mathrm{.}5\%$ in the euro zone and $3\%$ in the United States.

a$.$ Compute the guaranteed euro contract proceeds from the American sale if Airbus

decides to hedge using a forward contract.

b$.$ 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?

c$.$ If Airbus decides to hedge using put options on U$.$S$.$ dollars, what would be the

$$expected$$ euro proceeds from the American sale? Assume that Airbus regards the

current forward exchange rate as an unbiased predictor of the future spot rate.

d$.$ At what future spot exchange rate do you think Airbus will be indifferent between the

option and money market hedge?