Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France is billed€10.06 million (€ 10,600,000), to be paid to Boeing in one year. The current spot exchange rate is$1.05/€, and the one-year forward rate is $1.10/€. The annual interest rate is 6 percent in theUnited States and 5 percent in France. Boeing is concerned with the volatile exchange ratebetween the dollar and the euro and would like to hedge exchange exposure.If Boeing decides to use a money market hedge, what is the USD amount it would receive in 1year from hedging its foreign exposure?O 10,663,600 USDO 10,060,000 USDO 9,580,952 USD11.130,000 USD

A money market hedge is a financial strategy used by businesses and investors to protect themselves…

Answered: If Boeing decides to use a money market…

If Boeing decides to use a money market hedge, what is the USD amount it would receive in 1 year from hedging its foreign exposure? 10.663,600 USD O 10,060,000 USD O 9,580,952 USD 11.130,000 USD

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 1ST

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Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France is billed
€10.06 million (€ 10,600,000), to be paid to Boeing in one year. The current spot exchange rate is
$1.05/€, and the one-year forward rate is $1.10/€. The annual interest rate is 6 percent in the
United States and 5 percent in France. Boeing is concerned with the volatile exchange rate
between the dollar and the euro and would like to hedge exchange exposure.
If Boeing decides to use a money market hedge, what is the USD amount it would receive in 1
year from hedging its foreign exposure?
O 10,663,600 USD
O 10,060,000 USD
O 9,580,952 USD
11.130,000 USD

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