Boeing just signed a contract to sell a Boeing 737 aircraft to Air France Air France will be billed 20 million payable in one year The current spot exchange rate is $1 05 and the one year forward rate is $1 10 The annual interest rate is 6 percent in the United States and 5 percent in France Boeing...

a In the case of forward hedge the future dollar proceeds ...

Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will

Question:

Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed €20 million payable in one year. The current spot is $1.05/€ and the one-year forward rate is $1.10/€. The annual interest rate is 6 percent in the United States and 5 percent in France. Boeing is concerned with the volatile between the dollar and the euro and would like to hedge exchange exposure.
a. It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Credit Lyonnaise against the euro receivable. Which alternative would you recommend? Why?
b. Other things being equal, at what forward would Boeing be indifferent between the two hedging methods?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...