3 Determine the amount of euros received by the Sports Exports Company if a forward hedge is used to hedge receivables in one month under each of the two exchange rate scenarios.

Jim Logan, owner of the Sports Exports Company (Ireland), will be receiving about £10 000 about one month from now as payment for exports produced and sent by his firm. Jim 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.
Jim notices that the prevailing spot rate of the pound is 1.45 euros, and the one-month forward rate is about 1.445 euros. Jim can purchase a put option over the counter from a securities firm that has an exercise (strike) price of 1.445 euros, a premium of 0.020 euros, and an expiration date of one month from now.