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Airbus mini case
Transcript of Airbus mini case
at spot rate At current spot: €28,571,428.57 A400 If euro rises above €1.05,
Airbus will receive less than €28,571,428.57
If euro falls below €1.05,
Airbus will receive more than €28,571,428.57 Buy a Forward Contract Forward rate: €1.10 $30,000,000 / 1.10 €27,272,727.27 Money Market Hedge 1. Borrow $29,126,213.59 2. Use $ to buy € at spot €1.05 €27,739,251.04 3. Deposit at 2.5% €28,432,732.32 Option Strike price: $1 = €0.95 Premium: €0.02 per $ Put If we assume that the current forward exchange rate is an unbiased predictor of the future spot exchange rate, then Exercise because $0.95 > $0.9091 Cost of option: €615,000 €27,885,042.75 Indifference 28,432,732.32 = $30,000,000x-615,000 x = €1.0327 Summary Forward Contract: €27,272,727.27
Money Market Hedge: €28,432,732.32
Put Option: €27,885,000