1. Boeing just signed a contract to sell a Boeing 787 aircraft to Air France. Air France will be billed 20 million which is payable in one year. The likely spot exchange rate is then expected to be $1.05/ and the one-year forward rate is $1.10/. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure.

What is the expected gain/loss from the forward hedging?

1. Walt Disney expects to receive a Mex$16 million theatrical fee from Mexico in 90 days. The current spot rate is $0.1321/Mex$ and the 90-day forward rate is $0.1242/Mex$.

If the spot rate expected in 90 days is $0.1305, what is the expected U.S. dollar value of the fee?

What is the hedged dollar value of the fee?

1. An importer has a payment of 8 million due in 90 days.

If the 90-day pound forward rate is $1.4201, what is the hedged cost of making that payment?

If the spot rate expected in 90 days is $1.4050, what is the expected cost of payment?

1. Airbus sold an aircraft, A350-900, to Delta Airlines, a U.S. company, and billed $30 million payable in six months. Airbus is concerned with the euro proceeds from international sales and would like to control exchange risk. The current spot exchange rate is $1.05/ and six- month forward exchange rate is $1.10/ at the moment. Airbus can buy a six-month put option on U.S. dollars with a strike price of 0.95/$ for a premium of 0.02 per U.S. dollar.

Compute the guaranteed euro proceeds from the American sale if Airbus decides to hedge using a forward contract.

If Airbus decides to hedge using put options on U.S. dollars, what would be the 'expected' euro proceeds from the American sale?