You have bid for a possible export order that would provide a cash inflow of €1 million in six months. The spot exchange rate is $1.3549  €1 and the six-month forward rate is $1.3620  €1. There are two sources of uncertainty: (1) the euro could appreciate or depreciate and (2) you may or may not receive the export order. Illustrate in each case the final payoffs if ( a ) you sell one million euros forward, and ( b ) you buy a six-month option to sell euros with an exercise price of $1.3620/€.

AppendixLO1