Suppose That Boeing Corporation Exported a Boeing 747 to British

question 6

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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Definitions:

Imperfectly Competitive Market

A market structure where the assumptions of perfect competition, such as identical products and many buyers and sellers, are not fully met.

Imperfectly Competitive

Describes markets where individual sellers can influence prices and terms of trade, contrary to perfect competition.

Purely Competitive

A market structure characterized by many sellers offering identical products, with no single seller able to influence market price.

Pure Monopolist

An exclusive market condition where a single company or entity has complete control over the production and sale of a product or service.