# Ii take delivery of 146 million iii have a zero net

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(ii) take delivery of \$14.6 million (iii) have a zero net euro exposure (iv) have a profit, or a loss, depending on the future changes in the exchange rate , from this British sale. A) (ii), (iii), and (iv) B) (ii) and (iv) C) (i) and (iv) D) (i), (ii), and (iii) B Q9) 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. D) none of the options

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C Q10) Your firm has a British customer that is willing to place a \$1 million order, but wants to pay in pounds instead of dollars. The spot exchange rate is \$1.85 = £1.00 and the one-year forward rate is \$1.90 = £1.00. The lead time on the order is such that payment is due in one year. What is the fairest exchange rate to use? A) \$1.8750 = £1.00 B) \$1.85 = £1.00 C) \$1.90 = £1.00 D) none of the options C Q11) Your firm is a U.K.-based exporter of British bicycles. You have sold an order to an Italian firm for €1,000,000 worth of bicycles. Payment from the Italian firm (in €) is due in twelve months. Your firm wants to hedge the receivable into pounds , NOT dollars. Interest rates are 3 percent in €, 2 percent in \$ and 4 percent in £. Country U.S.\$ equiv. Currency per U.S.\$ Tuesday Monday Tuesday Monday Britain(pound) - Contract size: £62,500 1.6000 1.6100 0.625 0.6211 1 Month Forward 1.6100 1.6300 0.6211 0.6173 3 Months Forward 1.6300 1.6600 0.6173 0.6024 6 Months Forward 1.6600 1.7200 0.6024 0.5814 12 Months Forward 1.7200 1.8000 0.5814 0.5556 Euro - Contract size: €62,500 1.2000 1.2000 0.833333 0.833333 1 Month Forward 1.2100 1.2100 0.82645 0.82645 3 Months Forward 1.2300 1.2300 0.813008 0.813008 6 Months Forward 1.2600 1.2600 0.793651 0.793651 12 Months Forward 1.2900 1.3200 0.775194 0.757575 Detail a strategy using spot exchange rates and borrowing or lending that will hedge your exchange rate risk. A) Sell €1m forward using 16 contracts at \$1.20 per €1. Buy £750,000 forward using 12 contracts at \$1.60 per £1. B) Sell €1m forward using 16 contracts at the forward rate of \$1.29 per €1. Buy £750,000 forward using 12 contracts at the forward rate of \$1.72 per £1. C) Borrow €970,873.79 now. In one year, you owe €1m, which will be financed with the receivable. Convert €970,873.79 to dollars at spot, receive \$1,165,048.54. Convert dollars to pounds at spot, receive £728,155.34.
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