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Hedges of foreign-currency-denominated firm commitments Spot and forward rates for the euro are: December 15, 2018 December 31, 2018 January 15, 2019 Spot rate Forward
Hedges of foreign-currency-denominated firm commitments Spot and forward rates for the euro are: December 15, 2018 December 31, 2018 January 15, 2019 Spot rate Forward rate for January 15, 2019 delivery $1.290 $1.300 1.320 1.325 1.330 1.330 On December 15, 2018, a U.S. company issues a purchase order for merchandise costing 1,000,000 from suppliers in Germany. The company plans to pay the suppliers on delivery of the merchandise, scheduled for January 15, 2019. On December 15, the company enters into a forward contract for delivery of 1,000,000 on January 15, 2019. The forward contract is a qualified fair value hedge of the firm commitment to buy merchandise. The company's accounting year ends December 31. On January 15, 2019, the company takes delivery of the merchandise, closes the forward contract, and pays the suppliers. How is the U.S. company's 2018 income affected by the above events? Select one: o $30,000 loss $ 5,000 loss No effect O $25,000 gain
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