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Boeing just signed a contract to sell a Boeing /3/ aircraft to Air France. Air France will be billed 20 million payable in one year.
Boeing just signed a contract to sell a Boeing /3/ aircraft to Air France. Air France will be billed 20 million payable in one year. The current spot exchange rate is $1.05 per euro and the one-year forward rate is $1.10 per euro. The annual interest rate is 6 percent in the United States and 5 percent in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. Required: a. It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Crdit Lyonnaise against the euro receivable. Which alternative would you recommend? b. Other things being equal, at what forward exchange rate would Boeing be indifferent between the two hedging methods? Complete this question by entering your answers in the tabs below. Other things being equal, at what forward exchange rate would Boeing be indifferent between the two hedging methods? Note: Do not round intermediate calculations. Round your answer to 2 decimal places and final answer in whole dollars not in millions
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