Boeing just signed a contract to sell a Boeing $737$ aircraft to Air France. Air France will be billed $10\mathrm{.}14$ million payable in one year. The

current spot exchange rate is $$1\mathrm{.}07$ per euro and the one$-$year forward rate is $$1\mathrm{.}12$ per euro. The annual interest rate is $8$ percent in the

United States and $7$ 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 Cr$$dit 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.

Required B

It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Cr$$dit Lyonnaise

against the euro receivable. Which alternative would you recommend?

Note: Enter your Forward hedge and Money market hedge answers in whole dollars not in millions.

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