Bartleby the Scrivener

Finance

USE THE ATTACHED CASE TO ANSWER THE FOLLOWING QUESTIONS:
a) If the DM/US$ exchange rate were 2.4DM/US$ in January 1986, what would be the all-in cost of
the aircraft purchase under each alternative? (Consider both fully hedged and hedging exactly
one half of the cost).
b) What if the exchange rate were 3.4DM/US$? (Consider both fully hedged and hedging exactly
one half of the cost).
c) Why may you only want to hedge part of the purchase price?
d) Which alternative would you choose and why?
e) Given that the actual exchange rate in January 1986 was 2.3DM/US$, what was the cost under
each alternative? (Consider both fully hedged and hedging exactly one half of the cost).

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