Suppose that Boeing Corporation exported a Boeing 747 to Lufthansa and billed €10 million payable in one year. The money market interest rates and foreign exchange rates are given as follows:
The U. S. one-year interest rate: 6.10 % per annum
The euro zone one-year interest rate: 9.00 % per annum
The spot exchange rate: $ 1.50 /€
The one-year forward exchange rate $1.46/€
Assume that Boeing sells a currency forward contract of €10 million for delivery in one year, in exchange for a predetermined amount of U. S. dollars. Suppose that on the maturity date of the forward contract, the spot rate turns out to be $1.40/€ (i. e. less than the forward rate of $1.46/€). Which of the following is true?
A) Boeing gained $0.6 million from forward hedging.
B) Boeing would have received only $14.0 million, rather than $14.6 million, had it not entered into the forward contract. Additionally, Boeing gained $0.6 million from forward hedging.
C) Boeing would have received only $14.0 million, rather than $14.6 million, had it not entered into the forward contract.
Answers: 3
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Suppose that Boeing Corporation exported a Boeing 747 to Lufthansa and billed €10 million payable in...
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