Agye will receive 20,000 British pounds one month from now as payment for apple juice, exports by his company. Agye is concerned about his exposure because he believes that there are two possible scenarios: (1) the pound will depreciate by 3% over the next month or (2) the pound will appreciate by 2% over the next month. There is a 70% chance that Scenario 1 will occur. There is a 30% chance that Scenario 2 will occur. Agye notices the spot rate of the pound is GHS 8.1 and the one month forward rate is GHS 8.6. Agye can purchase a put option over the counter from a securities firm that has an exercise (strike) price of GHS 8.6, a premium of GHS0.025, and an expiration date of one month from now. Determine the amount of cedis received by the apple Company under each of the two exchange rate scenarios if: a) The receivables to be received in one month are not hedged. b) A put option is used to hedge the receivables in one month. c) A forward hedge is used to hedge the receivables in one month.

/in /by

Agye will receive 20,000 British pounds one month from now as payment
for apple juice, exports by his company. Agye is concerned about his
exposure because he

believes that there are two possible scenarios: (1) the pound will
depreciate by 3%

over the next month or (2) the pound will appreciate by 2% over the
next month.

There is a 70% chance that Scenario 1 will occur. There is a 30%
chance

that Scenario 2 will occur.

Agye notices the spot rate of the pound is GHS 8.1 and the one month

forward rate is GHS 8.6. Agye can purchase a put option over the
counter

from a securities firm that has an exercise (strike) price of GHS 8.6,
a premium of

GHS0.025, and an expiration date of one month from now. Determine the
amount of

cedis received by the apple Company under each of the two exchange
rate

scenarios if:

a) The receivables to be received in one month are not hedged.

b) A put option is used to hedge the receivables in one month.

c) A forward hedge is used to hedge the receivables in one month.

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