Question
Boeing Airlines sold 5 Airplanes to Air France. Boeing sold their 707 flights priced at $40 Million per flight. SO the total cost of 5
Boeing Airlines sold 5 Airplanes to Air France. Boeing sold their 707 flights priced at $40 Million per flight. SO the total cost of 5 flights that Bowing sold were $200 Million. So, Boeing has a $200 Million receivable in US Dollars or USD. This $200 Million is at Today's(The day you are working on this assignment) Spot price. Boeing can enter into a forward, future, option or swap contract to hedge their $200 Million Account Receivable Exposure, which is due in 3 months. 90 days or 3 months is the maturity date of the receivable. Air France's payments are in Euro.
You have to find the Spot rate between the USD and Euro. Please remember that quotes have a bid and an ask price. How much Euro should Air France pay today if they decide to pay of the entire $200 Million.
Since they have 90 days to pay, if they choose an instrument to hedge, which instrument will they choose to hedge. You have to be the financial manager and make a choice of hedging instrument. Futures, Forwards, Options and Swaps are your available instruments.
b) who is paying whom and the currency and quotes, etc.
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