On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell 200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same day it purchased a 60-day speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42.
The rates are as follows:
|
Date |
Spot Rate |
Forward Rate for Feb 1 |
Spot Rate |
Forward Rate for Feb 1 |
|
December 1, 20X8 |
£1 = $1.76 |
$1.78 |
€1 = $1.40 |
$1.42 |
|
December 31, 20X8 |
£1 = 1.73 |
1.74 |
€1 = 1.38 |
1.40 |
|
February 1, 20X9 |
£1 = 1.75 |
€1 = 1.41 |
Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes.
1. Based on the preceding information, what is the effect of the British pound speculative contract on 20X8 net income?
A. $10,000 gain
B. $6,000 gain
C. $8,000 gain
D. $2,000 loss
2. Based on the preceding information, what is the overall effect of speculation on 20X8 net income?
A. $4,000 gain
B. $6,000 gain
C. $8,000 loss
D. $8,000 gain
3. Based on the preceding information, what is the effect of the euro speculative contract on 20X9 net income?
A. $4,000 loss
B. $1,000 gain
C. $8,000 gain
D. $2,000 loss
4. Based on the preceding information, what is the overall effect of speculation on 20X9 net income?
A. $1,000 loss
B. $6,000 gain
C. $3,000 loss
D. $8,000 gain
5. Based on the preceding information, what is the net gain or loss on the British pound speculative contract?
A. $8,000 gain
B. $6,000 gain
C. $3,000 loss
D. $10,000 gain
6. Based on the preceding information, what is the net gain or loss on the euro speculative contract?
A. $8,000 gain
B. $6,000 gain
C. $3,000 loss
D. $1,000 loss
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