Burton Manufacturing. Jason Stedman is the director of finance for Burton Manufacturing, a U.S.-

based manufacturer of handheld computer systems for inventory management. Burton’s system combines a low-cost active tag that is attached to inventory items (the tag emits an extremely low-grade radio frequency) with custom-designed hardware and software that tracks the low-grade emissions for inventory control. Burton has completed the sale of an inventory management system to a British firm, Pegg Metropolitan (UK), for a total payment of £1,000,000. The exchange rates shown at the bottom of this page were available to Burton on the dates shown, corresponding to the events of this specific export sale. Assume each month is 30 days.

a. What will be the amount of foreign exchange gain

(loss) upon settlement?

b. If Jason hedges the exposure with a forward contract, what will be the net foreign exchange gain

(loss) on settlement?

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Date Event Spot Rate ($/) Forward Rate ($/) Days Forward February 1 March 1 Price quotation for Pegg Contract signed for sale 1.7850 1.7771 210 1.7465 1.7381 180 Contract amount, pounds 1,000,000 June 1 Product shipped to Pegg 1.7689 1.7602 August 1 Product received by Pegg 1.7840 1.7811 September 1 Grand Met makes payment 1.7290 81 90 30