Agyenim is concerned about his exposure because he believes that there are two possible scenarios: (1) the pound will depreciate by 3 percent over the next month or (2) the pound will appreciate by 2 percent over the next month. There is a 70 percent chance that Scenario 1 will occur. There is a 30 percent chance that Scenario 2 will occur. Agyenim notices that the prevailing spot rate of the pound is GHS 8.1 and the one- month forward rate is GHS 8.6. Agyenim 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 Best Pineapple 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

Agyenim is concerned about his exposure because he believes that there
are two possible scenarios: (1) the pound will depreciate by 3 percent
over the next month or (2) the pound will appreciate by 2 percent over
the next month. There is a 70 percent chance that Scenario 1 will
occur. There is a 30 percent chance that Scenario 2 will occur.

Agyenim notices that the prevailing spot rate of the pound is GHS 8.1
and the one- month forward rate is GHS 8.6. Agyenim 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 Best Pineapple 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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