Question
Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed 20 million payable in one year.
Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed 20 million payable in one year. The current spot exchange rate is $1.05/ and the one year forward rate is $1.10/. The annual interest rate is 6 percent in the United State sand 5 per cent in France. Boeing is concerned with the Volatile exchange rate between the dollar and Euro and would like to hedge exchange exposure.
a. It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Credit Lyonnaise against the Euro receivables. Which alternative would you recommend and why?
b. Other thing being equal, at what forward exchange rate would Boeing be indifferent between the two hedging methods.
Please do not copy form Chegg. Otherwise i have to report the answer.
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