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. dollars. 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 contract
B)Boeing gained $0.6 million from forward hedging
C)a and b
D)none of the above

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. dollars. 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 contract 
B)Boeing gained $0.6 million from forward hedging 
C)a and b 
D)none of the above

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. dollars. 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 contract 
B)Boeing gained $0.6 million from forward hedging 
C)a and b 
D)none of the above

Suppose That Boeing Corporation Exported a Boeing 747 to Lufthansa