Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed €10.14 million payable in one year. The current spot exchange rate is $1.07 per euro and the one-year forward rate is $1.12 per euro. The annual interest rate is 8 percent in the United States and 7 percent in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. Required: a. It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Crédit 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? Complete this question by entering your answers in the tabs below. Required A Required B It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Crédit Lyonnaise against the euro receivable. Which alternative would you recommend? Note: Enter your Forward hedge and Money market hedge answers in whole dollars not in millions. Forward hedge Money market hedge Recommend alternative Show less▲

Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed €10.14 million payable in one year. The current spot exchange rate is $1.07 per euro and the one-year forward rate is $1.12 per euro. The annual interest rate is 8 percent in the United States and 7 percent in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. Required: a. It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Crédit 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? Complete this question by entering your answers in the tabs below. Required A Required B It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Crédit Lyonnaise against the euro receivable. Which alternative would you recommend? Note: Enter your Forward hedge and Money market hedge answers in whole dollars not in millions. Forward hedge Money market hedge Recommend alternative Show less▲

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 54QA

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Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed €17 million which is payable in one year. The current EUR/USD rate is 1.0559 and the one-year forward rate is 1.0747. The annual interest rate is 4.2% in the U.S. and 1.4% in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. It is considering to hedge borrowing euros from Credit Lyonnaise against the euro receivable. How much will they receive in one year? (USD, no cents)
Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed €19 million which is payable in one year. The current EUR/USD rate is 1.0651 and the one-year forward rate is 1.0898. The annual interest rate is 4.9% in the U.S. and 2.7% in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. It is considering to hedge borrowing euros from Credit Lyonnaise against the euro receivable. How much will they receive in one year? (USD, no cents) The answer is 20,670,407 I cannot figure out how. Thanks!
Busco has a foreign-currency denominated payable, it can hedge by buying the foreign currency payable forward. The company can expect to eliminate the exposure without incurring costs as long as the forward exchange rate is an unbiased predictor of the future spot rate. Bus Co exported an A350 to a UK business, and was billed the sum of £11,000,000 payable in three months. Currently the spot rate is $1.30/£ and the three-month forward rate is $1.26/£.The three-month money market interest rate is 11% per annum in US and 7% per annum in UK.So the management of Busco decided to manage this transaction exposure and use the money market hedge to deal with this pound account payable. (i) Show how Busco can eliminate the exchange rate exposure by computing the dollar cost of meeting the pound obligation. ii)Conduct a cash flow analysis of the money market hedge.
Airbus has a foreign-currency denominated payable, it can hedge by buying the foreign currency payable forward. The company can expect to eliminate the exposure without incurring costs as long as the forward exchange rate is an unbiased predictor of the future spot rate. Airbus exported an A380 to a UK company, and was billed the sum of £ 12,000,000 payable in three months. Currently the spot rate is $1.40/£ and the three-month forward rate is $1.36/£.The three-month money market interest rate is 12% per annum in US and 8% per annum in UK.So the management of Airbus decided to manage this transaction exposure and use the money market hedge to deal with this pound account payable. Explain how Airbus can eliminate the exchange rate exposure