Problem $8\mathrm{.}4$

points

Boeing just signed a contract to sell a Boeing $737$ aircraft to Air France. Air France will be billed $10\mathrm{.}18$ million

payable in one year. The current spot exchange rate is $$1\mathrm{.}11$ per euro and the one$-$year forward rate is $$1\mathrm{.}16$ per

euro. The annual interest rate is $12$ percent in the United States and $11$ percent 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

Cr$$dit Lyonnaise against the euro receivable. Which alternative would you recommend?

b$.$ Other things being equal, at what forward exchange rate would Boeing be indifferent between the two

hedging methods?

Complete this question by entering your answers in the tabs below.

Required $A$

Required B

It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Cr$$dit $L$

against the euro receivable. Which alternative would you recommend?

Note: Enter your Forward hedge and Money market hedge answers in whole dollars not in millions.

Shou