Assuming a forward contract to sell 100,000 Israeli shekels was entered into on December 1, Year 1, as a fair value hedge of a foreign currency receivable, what would be the net impact on net income in Year 1 resulting from a fluctuation in the value of the shekel?

1. No impact on net income.
2. A $58.80 decrease in net income.
3. A $2,000 increase in income.
4. A $911.80 increase in income.

Use the following information for Exercises 6 through 8: On September 1, Year 1, Keefer Company received an order to sell a machine to a customer in Canada at a price of 100,000 Canadian dollars.The machine was shipped and payment was received on March 1, Year 2 at a price of $75,000. Keefer Company properly designates the option as a fair value hedge of the Canadian-dollar firm commitment. The option cost $1,700 and had a fair value hedge of $2,800 on December 31, Year 1. The fair value of the firm commitment is measured through reference to changes in the spot rate. The following sport exchange rates apply:

Date U.S. Dollar per Canadian Dollar

September 1, Year 1 $0.75

December 31, Year 1 0.73

March 1, Year 2 0.71

Keefer Company's incremental borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent (1 percent per month) is 0.9803.