Question: (Answer the following 5 questions using this information) Lufthansa (German airliner) bought an aircraft, 787 Dreamliner, from Boeing, a U.S. company, and agreed to pay

 (Answer the following 5 questions using this information) Lufthansa (German airliner)

bought an aircraft, 787 Dreamliner, from Boeing, a U.S. company, and agreed

to pay $30 million payable in six months. Lufthansa is concerned with

the euro payment of international purchases and would like to control exchange

risk. The current spot exchange rate is $1.30 / and six-month forward

(Answer the following 5 questions using this information) Lufthansa (German airliner) bought an aircraft, 787 Dreamliner, from Boeing, a U.S. company, and agreed to pay $30 million payable in six months. Lufthansa is concerned with the euro payment of international purchases and would like to control exchange risk. The current spot exchange rate is $1.30 / and six-month forward exchange rate is $1.20 / at the moment. Airbus can buy a sixmonth put option on U.S. dollars with a strike price of 0.8/$ for a premium of 0.02 per U.S. dollar. In addition, Airbus can buy a six-month call option on U.S. dollars with a strike price of 0.85/$ for a premium of 0.03 per U.S. dollar. Currently, six-month interest rate is 2.5% (5\% per annum) in the euro zone and 3.0% (6\% per annum) in the U.S. The following table shows possible Euro amount Lufthansa pays when the actual ending spot rate (first row) is realized depending on different alternative decisions. All the values are euro amount at the time when $30M is paid. The number in the table refers to the question number. Look up the table to answer the question. 21,428,57122,222,22223,076,92324,000,000 Look up the table to answer the question. 21,428,571 22,222,222 23,076,923 25,000,000 Look up the table to answer the question. 24,000,000 25,000,000 22,964,899 23,385,000 Look up the table to answer the question. 23,076,92325,000,00022,964,89923,999,423 When you draw a graph for options hedge, which one show the euro equivalent amount as the exchange rate changes? Y-axis shows the euro amount of $30 million, and X-axis is the exchange rate of euro per one unit of USD. Graph A Graph B Graph C Graph D

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!