SUPPOSE THAT BOEING CORPORATION EXPORTED A BOEING 747 TO BRITISH AIRWAYS AND BILLED GBP 10 MILLION PAYABLE IN ONE YEAR. THE MONEY MARKET INTEREST RATES AND FOREIGN EXCHANGE RATES ARE GIVEN AS FOLLOWS:

US INTEREST RATE: 6.10% PER ANNUM

UK INTEREST RATE: 9.00% PER ANNUM

SPOT EXCHANGE RATE: US$1.50/GBP

FORWARD EXCHANGE RATE: US$1.46/GBP (1-YEAR MATURITY)

ASSUME THAT BOEING SELLS A CURRENCY FORWARD CONTRACT OF GBP10 MILLION FOR DELIVERY IN ONE YEAR IN EXCHANGE FOR A GIVEN AMOUNT OF US DOLLARS. WHICH OF THE FOLLOWING ARE ALL TRUE?

ON THE MATURITY DATE OF THE CONTRACT BOEING WILL:

(i) HAVE TO DELIVER GBP 10 MILLION TO THE BANK (THE COUNTERPARTY OF THE CONTRACT)

(ii) TAKE DELIVERY OF US$14.6 MILLION

(iii) HAVE A ZERO NET POUND EXPOSURE

(iv) HAVE A PROFIT OR A LOSS, DEPENDING ON THE FUTURE CHANGES IN THE EXCHANGE RATE FROM THIS BRITISH SALE.

Select one:

a. (i), (ii), (iii)

b. (ii) and (iv)

c. (i) and (iv)

d. (ii), (iii), (iv)