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[Solution Library] Assume Boeing hedges the FX risk by buying a FX option. The option has a "strike" price of $1.15 and costs $0.01 per euro. What type of

Question: Assume Boeing hedges the FX risk by buying a FX option. The option has a "strike" price of $1.15 and costs $0.01 per euro.

  1. What type of option (call or put) would Boeing need to buy? Explain.
  2. What is the upfront cost of purchasing the option?
  3. Describe what Boeing would do in 12 months, and the financial ramifications, if the spot price increased to $1.50 per euro. Show your computations.
  4. Describe what Boeing would do in 12 months, and the financial ramifications, if the spot price decreased to $0.90 per euro. Show your computations.

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