Embraer of Brazil is one of the two leading global manufacturers of regional jets (Bombbardler of Canada is the other). Regional jets are smaller than the traditional civilian airliners produced by Airbus and Boeing, seating between 50 and 100 people on average. Embraer has concluded an agreement with a regional U S airline to produce and deliver four aircraft one year from now for $78 Million. Although Embraer will be paid in U.S. Dollars. It also possesses a currency exposure of inputs- it must pay foreign suppliers $15 million for inputsone year from now (but they will be delivering the subcomponents throughtout the year). The cuurent spot rate on the Brazilian real (R$) is R$1.87/$, but it has been steadily appreciating against the US dollar over the past three years. Forward contracts are difficult to acquire and are considered expensive. Citibank Brasil has not explicity provided Embraer a forward rate quote, but has stated that it will probably be pricing a forward off the current 3.50% US dollar eurocurrency rate and the 95.00% Brazilian government bond rate. Advise Embraer on its currency exposure How much of net cash position in Brazilian reals with Embraer receive in one year without a hedge if the expected spot rate in one year is expected to be r$1.8227/$ R$___________________ How much is Brazilian reals will Embraer receive in one year if the net cash position is covered by a one-year forward contract? R$__________
Embraer of Brazil is one of the two leading global manufacturers of regional jets (Bombbardler of Canada is the other). Regional jets are smaller than the traditional civilian airliners produced by Airbus and Boeing, seating between 50 and 100 people on average. Embraer has concluded an agreement with a regional U S airline to produce and deliver four aircraft one year from now for $78 Million.
Although Embraer will be paid in U.S. Dollars. It also possesses a currency exposure of inputs- it must pay foreign suppliers $15 million for inputsone year from now (but they will be delivering the subcomponents throughtout the year). The cuurent spot rate on the Brazilian real (R$) is R$1.87/$, but it has been steadily appreciating against the US dollar over the past three years. Forward contracts are difficult to acquire and are considered expensive. Citibank Brasil has not explicity provided Embraer a forward rate quote, but has stated that it will probably be pricing a forward off the current 3.50% US dollar eurocurrency rate and the 95.00% Brazilian government bond rate. Advise Embraer on its currency exposure
How much of net cash position in Brazilian reals with Embraer receive in one year without a hedge if the expected spot rate in one year is expected to be r$1.8227/$ R$___________________
How much is Brazilian reals will Embraer receive in one year if the net cash position is covered by a one-year forward contract? R$__________
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