Question: Problem 3: Boeing just signed a contract to sell a Boeing 787 aircraft to Air France. Air France will be billed EUR 20 million payable

Problem 3: Boeing just signed a contract to sell a Boeing

Problem 3: Boeing just signed a contract to sell a Boeing 787 aircraft to Air France. Air France will be billed EUR 20 million payable in one year. The current spot exchange rate is USD 1.05 per EUR, and the one-year forward rate is USD 1.10 per EUR. The annual interest rate is 6 percent in the United States and 5 percent in France. Boeing is concerned with the volatile exchange rate between the USD and the EUR and would like to hedge exchange exposure. (a) It considers two hedging strategies: sell the EUR proceeds from the sale forward (Forward contract) or borrow EUR from Crdit Lyonnaise against the EUR receivable (Money Market Hedge). Which alternative would you recommend? Why? (b) Other things being equal, at what forward exchange rate would Boeing be indifferent between the

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