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Based on past experience, Maas Corporation ( a U . S . - based company ) expects to purchase raw materials from a foreign supplier
Based on past experience, Maas Corporation a USbased company expects to purchase raw materials from a foreign supplier at a cost of francs on March To hedge this forecasted transaction, on December the company acquires a call option to purchase francs in three months. Maas selects a strike price of $ per franc when the spot rate is $ and pays a premium of $ per franc. The spot rate increases to $ at December causing the fair value of the option to increase to $ By March when the raw materials are purchased, the spot rate has climbed to $ resulting in a fair value for the option of $ The raw materials are used in assembling finished products, which are sold by December when Maas prepares its annual financial statements.
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