Boeing just signed a contract to sell aircraft parts to Air France and will receive 50 million in six months. The current spot exchange rate is $1.076/ and the six-month forward rate is $1.088/. Boeing can buy a six-month put option on the euro with an exercise price of $1.120/ for a premium of $0.051/. Currently, the six-month interest rate is 1.32 percent per annum in the United States and 0.24 percent per annum in France. Boeing believes that the euro would likely appreciate from its current level, but would still like to hedge its exchange exposure.

1. Explain how Boeing should do a forward hedge. Compute the guaranteed dollar proceeds from the Air France sales if Boeing decides to hedge using a forward contract.

2. If Boeing decides to hedge using money market instruments, what action does Boeing need to take? What would be the guaranteed dollar proceeds from the Air France sale in this case?

3. If Boeing decides to hedge using put options on the euro, what would be the expected net dollar proceeds from the Air France sale? Assume that Boeing regards the current forward exchange rate as an unbiased predictor of the future spot exchange rate.

4. At what future spot exchange rate do you think Boeing will be indifferent between the options hedge and forward hedge? Between options hedge and money market hedge?

- Illustrate your answers with the proper post-hedging net $ proceed charts, labeling your foreign exchange rates and net proceeds properly.