Question $19$

$4$ pts

Boeing just signed a contract to sell a Boeing $737$ aircraft to Air France. Air France will be billed $50$ million which is payable in one year. The current spot exchange rate is $$\frac{1\mathrm{.}1}{}$ and the one$-$year forward rate is $$\frac{1\mathrm{.}20}{}.$ The annual interest rate is $5\mathrm{.}0\%$ in the U$.$S$.$ and $2\mathrm{.}0\%$ in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure.

Now Boeing also considers the hedging by using the one$-$year put option on $$ with the exercise rate of $$\frac{1\mathrm{.}05}{}$ for the premium of $$0\mathrm{.}02$ per $$ Assume that your expected future spot exchange rate is the same as the forward rate. What is your ranking order of the three alternatives from the most preferred to the least preferred?

$$ money market, option market, forward market

forward market, money market, option market.

forward market, option market, money market

$$ option market, forward market, money market.