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)

Question

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)

Quizplus · Accepted Answer

The Answer of 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)

Suppose That Boeing Corporation Exported a Boeing 747 to Lufthansa