Name: Manish Kumar Roll Number: PGEMP30/A/24 Solution: a) Spot Rate EUR/USD 1 Year Forward Rate EUR/USD Sr.

No. 1 2 Currency USD EURO Euro Receivable after 1 year Case- 1: Forward Hedging Amount recievable after 1 year (@ $1.2400) Case - 2: Borrow Euro & invest in US for one year Amount to borrow in Euro @ 5% interest rate (Present Value of Euro Receivables) Dollar equivalent borrowed Euro ( spot rate= $1.22) Investing Dollar equivalent in US (@ 6% interest Rate) Difference in amount in Case 1 & Case 2 = Clearly, Boeing can receive $167,619 more by using forward hedging. 24800000 1.2200

1.2400 Interest rates 6% 5% 20000000

19047619 23238095

24632381 167619

b)

Calculation of Indifferent forward rate will be: F / E = (1+IR$)/(1+IRF) Where, F = Forward Rate = E= Spot Rate = IR$ = USD interest rate = IRF = France interest rate = F = (1+IR$)/(1+IRF) * E =

1.22 6% 5% $ 1.2316

Indifferent Forward Rate =

$ 1.2316 per franc