Question
Suppose British Airways, a British firm, is obligated to pay Boeing, a U.S. firm, $1 million in 90 days. Suppose that British Airways owns no
Suppose British Airways, a British firm, is obligated to pay Boeing, a U.S. firm, $1 million in 90 days. Suppose that British Airways owns no USD currently and is going to wait until 90 days in the future to purchase USD, what is British Airways largest potential cost in buying dollars without hedging?
A. Hard to say because future exchange rate is hard to predict.
B. Unlimited because there is possibility that British pound depreciates significantly against USD in 90 days.
C. Unlimited because there is possibility that USD depreciates significantly against British pound in 90 days.
D. Zero because the price of the airplane has been fixed while British Airways was invoiced.
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