Question
Boeing Corporation exported a Boeing 787 to British Airways and just has £ 20 mil receivable...
Boeing Corporation exported a Boeing 787 to British Airways and just has £ 20 mil receivable in one year. The financial management of the company plan to hedge the FX risk through money market based on the current available information shown below:
–
The US interest rate
6.00%
per annum
–
The UK interest rate 9.00% per annum
–
The Spot exchange rate $ 1.50/£
–
The forward exchange rate $ 1.46/£
Based on the above case, if Boeing decide to use FX options to hedge the FX risk for the £ 20 mil receivable. The company should purchase _________ (call or put) options. The option purchased has a strike price of $1.46/£, and a premium of $.02/£.
(a)
What would be the company’s
net dollar proceeds
if the spot rate 1 year later is $1.56/£
?
Tip: please consider the future value of option price
(b) What would be the company’s net dollar proceeds if the spot rate 1 year later is $1.44/£ ?
Homework Answers
Answer #1
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