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Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed 20 million which is payable

 

Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed 20 million which is payable in 3 months' time. The following information is available to you: Spot exchange rate $1.2331/-$1.2453/ 3-month forward exchange rate $1.2342/-$1.2486/ $ interest rate interest rate ii. 4.6% -4.8% p.a. 3.2% -3.6% p.a. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge its foreign exchange exposure. Boeing is considering two hedging alternatives: a forward hedge and a money market hedge. i. Which alternative would you recommend and why? Clearly show your calculations. What is the forward rate that would make the two hedges equivalent?

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Lets analyze the two hedging alternatives for Boeing i Forward Hedge Forward Rate 12342 Expected future spot rate in 3 months 12453 from the given spo... blur-text-image

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