Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed 620.04 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 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. a. It is considering two hedging altematives: 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? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Suppose that Baltimore Machinery sold a drilling machine to a Swiss firm and gave the Swiss client a choice of paying either $12,600 or SF18,900 in three months. Baltimore Machinery effectively gave the Swiss client a free option to buy up to $12,600 using Swiss francs. What is the "implied" exercise exchange rate? (Round your answer to 4 decimal places.) Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 740 million yen payable in one year. The current spot rate is 136/$ and the one-year forward rate is 122/$. The annual interest rate is 5 percent in Japan and 8 percent in the United States. PCC can also buy a one-year call option on yen at the strike price of $.0069 per yen for a premium of .014 cents per yen. a. Compute the future dollar costs of meeting this obligation using the money market and forward hedges. b. Assuming that the forward exchange rate is the best predictor of the future spot rate, compute the expected future dollar cost of meeting this obligation when the option hedge is used. Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced C11.20 million payable in six months. Currently, the six-month forward exchange rate is $1.16/ and the foreign exchange adviser for Cray Research predicts that the spot rate is likely to be $1.11/C in six months. a. What is the expected gain/loss from a forward hedge? Suppose that you are a U.S.-based importer of goods from the United Kingdom. You expect the value of the pound to increase against the U.S. dollar over the next 30 days. You will be making payment on a shipment of imported goods in 30 days and want to hedge your currency exposure. The U.S. risk-free rate is 5.0 percent, and the U.K. risk-free rate is 4.0 percent. These rates are expected to remain unchanged over the next month. The current spot rate is $2.20. a. Whether you should use a long or short forward contract to hedge the currency risk. Long position in forward contract Short position in forward contract b. Calculate the no-arbitrage price at which you could enter into a forward contract that expires in 30 days, (Do not round intermediate calculations. Round your answer to 4 decimal places.) c. Move forward 10 days. The spot rate is $2.23. Interest rates are unchanged. Calculate the value of your forward position. (Do not round intermediate calculations, Round your answer to 4 decimal places.) You plan to visit Geneva, Switzerland, in three months to attend an international business conference. You expect to incur a total cost of SF6,800 for lodging, meals, and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the threemonth forward rate is $0.72/SF. You can buy the three-month call option on SF with an exercise price of $0.73/SF for the premium of $0.05 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 8 percent per annum in the United States and 5 percent per annum in Switzerland. a. Calculate your expected dollar cost of buying SF6,800 if you choose to hedge by a call option on SF. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Calculate the future dollar cost of meeting this SF obligation if you decide to hedge using a forward contract. c. At what future spot exchange rate will you be indifferent between the forward and option market hedges? (Do not round Intermediate calculations. Round your answer to 5 decimal places.)