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Airbus mini case

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by

Lena Ibadoul

on 21 April 2013

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Transcript of Airbus mini case

Yelena Ibadul, Yelena Nechayeva, Sebastien Dejoie Airbus' Dollar Exposure "Do Nothing" Alternative Basics Airbus sold A400 to Delta for $30 million, payable in 6 months. Current Spot: €1.05 6 month forward: €1.10 Euro zone interest rate: 2.5% US interest rate: 3.0% How can Airbus control the exchange risk? Receive $30 million in 6 months
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
Full transcript