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Suppose That Boeing Corporation Exported a Boeing 747 to British

Question 3

Multiple Choice

Suppose that Boeing Corporation exported a Boeing 747 to British Airways and billed £10 million payable in one year. The money market interest rates and foreign exchange rates are given as follows:
The U.S. interest rate: 6.10% per annum
The U.K. interest rate: 9.00% per annum
The spot exchange rate: $1.50/£
The forward exchange rate: $1.46/£ (1-year maturity)
-Assume that Boeing sells a currency forward contract of £10 million for delivery in one year,in exchange for a given amount of U.S.dollar.Which of the following is all true?
On the maturity date of the contract Boeing will
(i) - have to deliver £10 million to the bank (the counterparty of the 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) , (iv)
D) (i) , (ii) , (iii)

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