Boeing Corp sold a Boeing 777 to British Airways and bill 200 Million Euro payble in one year. Boeing is concerned with the euro proceeds from international sales and would like to control exchange rate risk. The current spot exchange rate is $1.3/euro and one-year forward exchange rate is $1.27/euro. Boeing can buy a one-year put option on 200 million euro with a strike price of $1.32/euro for a premium of $.02 per euro. It can also buy a one-year call option on 200 million euro with a strike price of $1.29/euro for a premium of $.15 per euro. Currently, 1 year interest rate is 6.1% in the U.K. and 5.0% in the U.S.

A) compute the guaranteed dollar proceeds from the sale if Boeing decides to hedge using a forward contract.

B) If Boeing decides to hedge using money market instruments, what action does boeing need to take? What would be the guaranteed dollar proceeds from the sale in this case?

C) If Boeing decides to hedge using options on euros, what option (put or call) will Boeing use? What would be the expected dollar proceeds from the aircraft sale? Assume that boeing regards the current forward exchange rate as an unbiased predictor of the future spot exchange rate.

D) Based on the available information and your calculations above, what is your recommendation to boeing for a best strategy (Forward Vs Money Market Vs Options hedge)? Why?

E) Other things being equal, at what forward rate would boeing be indifferent between the forward and money market hedge?