Boeing has just signed a contract to sell its Boeing 747 aircraft to Air France....
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Boeing has just signed a contract to sell its Boeing 747 aircraft to Air France. Air france will be billed Euro 300 million owed in one year. The current spot rate is $1.05/euro and the one-year forward rate is $1.10/euro. Annual interest rates are 6 percent in the United States and 5 percent in France, Boeing is concerned with exchange rate volatility between the dollar and the euro and hedging exchange rate exposure.
There are two alternative hedges to be considered: selling euro proceeds from selling forwards or borrowing euros from Credit Lyons against euro receivables. Which alternative would you recommend? Why? b. Other things being held constant, at what forward rate will Boeing be equally good between the two hedges?
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