Question
Airbus sold an aircraft, A400, to Delta Airlines, a U.S. company, and billed $30 million payable in six months. Airbus is concerned with the euro
Airbus sold an aircraft, A400, to Delta Airlines, a U.S. company, and billed $30 million payable in six months. Airbus is concerned with the euro proceeds from international sales and would like to control exchange risk. The current spot exchange rate is $1.05/ and six-month forward exchange rate is $1.10/ at the moment. Airbus can buy a six-month put option on U.S. dollars with a strike price of 0.95/$ for a premium of 0.02 per U.S. dollar. Currently, six-month interest rate is 2.5% in the euro zone and 3.0% in the U.S.
a.Compute the guaranteed euro proceeds from the American sale if Airbus decides to hedge using a forward contract.
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