Question: 1 Question 1 (15 marks) Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. AirFrancewill be billed 20 million which

1 Question 1 (15 marks) Boeing just signed a contract to

1 Question 1 (15 marks) Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. AirFrancewill be billed 20 million which is 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 6.0% in theU.S.and 5.0% 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 Credit Lyonnaise against the euro receivable. Which alternative would you recommend? Why? [10 marks] (b) Other things being equal, at what forward exchange rate would Boeing be indifferent between the two hedging methods? [5 marks] (15.05) S2 TU E O * N

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