Does not take any action about exchange rate

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Boeing Company sold some aircrafts to Qantas Airlines for A$500 million. Payment is due in 3 months. Although the current exchange rate is $0.60/A$, the three months’ rate is unpredictable. The three-month forward rate is $0.70/A$. Both call and put options with three months’ expiration have strike price of $0.70/A$. How much US$ can Boeing collect three months later? Assuming exchange rates of $0.50/A$; $0.70/A$ and $0.85$ as possible rates, determine how much Boeing can collect if it

A. Doesn’t take any action about exchange rate

B. Enters into forward contract (state in which currency it should take long/short positions)

C. Buys option on A$ (state what option it should buy).

D. Engages in money market hedging (assume 3-month interest rates are 4% p.a. and 6.4% p.a. respectively in the US and in Australia).

Reference no: EM131330317

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