Hedging Payables Trade Corporation signed a contract to purchase electronic gauges from a foreign company with payment to be made in FCU (foreign currency units). A shipment costing 700,000 FCU was received on July 1 when the exchange rate was 20 FCU to $1. Trade Corporation paid for the gauges on September 1 when the exchange rate was 17 FCU to $1. Trade Corporation could have hedged its liability at the time it received the gauges by purchasing FCU for delivery on September 1 at a price of 19 FCU to $1.

a. What amount should Trade Corporation report as the purchase price of the gauges?

b. What was the actual amount paid by Trade Corporation on September 1, assuming it did not hedge its liability?

c. Trade Corporation considered entering into a contract with an exchange broker on July | to receive 700,000 FCU on September 1 as a hedge of its liability. The exchange broker would have charged a fee of $3,000 for entering into the contract. Would Trade Corporation have been better off or worse off by hedging its liability? By what amount?