Assume P Company, a U.S. company, makes a purchase from a foreign vendor, demoninated in foreign currency (FC). At the date of the purchase, November 1, 20x1, P agrees to pay the vendor 10,000 FC units on February 28, 20x2. Also on November 1, 20x1, P enters into a forward contract to buy 10,000 FC on February 28, 20x2 at a rate of $0.67. Rates are as follow:

Spot Forward

11/1/x1 $0.68 $0.66

12/31/x1 0.70 0.695

2/28/x2 0.69 x

You must show all computations, with labels, for full credit. You must label answers as gains or losses. You do NOT have to make journal entries.

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

(b) What is the gain/loss on the credit decision?

(c) What is the gain/loss on the contract decision?