Boeing just signed a contract to sell a 787 Dreamliner aircraft to KLM and KLM will be billed 117,187,500 which is payable in one year. The current spot exchange rate is quoted at $1.28/ and the one-year forward exchange rate is quoted at $1.29/. Currently, one-year money market rates are 3% in the U.S and 2% in the euro zone. A one-year put option on euros with a strike or exercise price of $1.30/ is selling at a premium of $0.02 per euro. Boeing is considering three hedging alternatives: forward hedge, money market hedge and option hedge

A. Compute the expected dollar proceeds if Boeing decides to hedge using a forward contract.

B. What transactions would Boeing need to carry out a money market hedge? Compute the guaranteed dollar proceeds if Boeing decides to use a money market hedge.

C. At what forward exchange rate will Boeing be indifferent between the forward hedge and the money market hedge?

D. Compute the expected dollar proceeds if Boeing decides to hedge using put options on euros. Assume that Boeing regards the current forward exchange rate as an unbiased predictor of the future spot exchange rate one year from now.

E. At what future spot exchange rate do you think Boeing will be indifferent between the option hedge and forward hedge?