Suppose That Boeing Corporation Exported a Boeing 747 to Lufthansa

question 15

Multiple Choice

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)

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Definitions:

Planning

The process of making plans for something, including setting goals and deciding on the actions to achieve them.

Organizing

The process of arranging resources and tasks to achieve objectives efficiently and effectively within an organization.

Leading

The process of arousing enthusiasm and inspiring efforts to achieve goals.

Controlling

In management, it refers to the process of monitoring performance, comparing it with goals, and taking corrective action as needed.