Question: (Payables) Suppose Boeing imported a Rolls-Royce jet engine for 2 million payable in one year The U.S. interest rate: 5.00% per annum The U.K. interest

(Payables) Suppose Boeing imported a Rolls-Royce jet engine for 2 million payable in one year

The U.S. interest rate: 5.00% per annum

The U.K. interest rate: 6.50% per annum

The spot exchange rate: $1.325/

The forward exchange rate: $1.375/ (1-year maturity)

Call option premium = $0.02, Strike price = $1.35.

If the future spot price is expected to be $1.425/ and assume that the company borrows money to buy the option. Compute the cost to the company in US Dollars using

Forward Hedge
Money-Market Hedge
Call option

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