ABC Company purchases inventory on 1/1/x4 for 10,000 FCU (foreign currency units) from a foreign supplier. The transaction is denominated in foreign currency. Payment is due 5/1/x4. ABC also enters into a forward exchange contract on the day of the inventory purchase to obtain the necessary FCU on 5/1/x4. ABC closes their books on 12/31.

Date/ Spot rate/ Forward rate to 5/1/x4

1/1/x4/ 1.34/ 1.55

3/1/x4/ 1.29/ 1.58

5/1/x4/ 1.31

Answer the following questions. You must show the computational support for your answers with all amounts clearly labeled for full credit.

(a) What was the total gain or loss on the entire transaction?

(b) What portion of (a) was due to the credit decision?

(c) What portion of (a) was due to the contract decision? (you can't say a. minus b equals c.....)