12. Currency risk (S28.3) 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 EUR/USD = 1.3549 and the six-month forward rate is EUR/USD = 1.3620. 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 1 million euros forward, and

(b) you buy a six-month option to sell euros with an exercise price of EUR/USD = 1.3620.