Assuming that MNC entered into a forward contract to sell 10 million South Korean won on December 1, 2011, as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2011 resulting from a fluctuation in the value of the won?

a. No impact on net income.

b. $58.80 decrease in net income.

c. $2,000 decrease in net income.

d. $1,941.20 increase in net income.

MNC Corp. (a U.S.-based company) sold parts to a South Korean customer on December 1, 2011, with payment of 10 million South Korean won to be received on March 31, 2012. The following exchange rates apply:

MNC’s incremental borrowing rate is 12 percent. The present value factor for three months at an annual interest rate of 12 percent (1 percent per month) is 0.9706.

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Date December 1, 2011 December 31, 2011 March 31, 2012 Spot Rate $0.0035 0.0033 0.0038 Forward Rate (to March 31, 2012) $0.0034 0.0032 N/A