Suppose that boeing corporation exported a boeing 747

This preview shows page 54 - 58 out of 107 pages.

We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Fundamentals of Financial Management
The document you are viewing contains questions related to this textbook.
Chapter 18 / Exercise 1A
Fundamentals of Financial Management
Brigham
Expert Verified
16. 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: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. dollar. Which of the following is (or are) true?On the maturity date of the contract Boeing will:(i) have to deliver €10 million to the bank (the counterparty of the forward contract)(ii) take delivery of $14.6 million(iii) have a zero net pound exposure(iv) have a profit, or a loss, depending on the future changes in the exchange rate, from this British sale A. (i) and (iv)B. (ii) and (iv)C. (ii), (iii), and (iv)D.(i), (ii), and (iii)Topic: Forward Market Hedge8-54
We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Fundamentals of Financial Management
The document you are viewing contains questions related to this textbook.
Chapter 18 / Exercise 1A
Fundamentals of Financial Management
Brigham
Expert Verified
Chapter 08 - Management of Transaction Exposure17. 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: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. dollar. 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 would have received only $14.0 million, rather than €14.6 million, had it not entered into the forward contractB. Boeing gained $0.6 million from forward hedgingC.a) and b)D. none of the aboveTopic: Forward Market Hedge8-55
Chapter 08 - Management of Transaction Exposure18. 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. Use the following table for exchange rate data.Detail a strategy using futurescontractsthat will hedge your exchange rate risk. Have an estimate of how many contracts of what type. A. Borrow €970,873.79 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.B. Sell €1m forward using 16 contracts at $1.20 per €1. Buy £750,000 forward using 12 contracts at $1.60 per £1.C. Sell €1m forward using 16 contracts at the forward rate of $1.29 per €1.D.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.Topic: Forward Market Hedge8-56
Chapter 08 - Management of Transaction Exposure

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture