On March 1, 2007, Mattie Company received an order to sell a machine to a customer in England at a price of 200,000 British pounds. The machine was shipped and payment was received on March 1, 2008. On March 1, 2007, Mattie purchased a put option giving it the right to sell 200,000 British pounds on March 1, 2008 at a price of $380,000. Mattie properly designates the option as a fair hedge of the pound firm commitment. The option cost $2,000 and had a fair value of $2,200 on December 31, 2007. The following spot exchange rates apply:

March 1, 2007 Spot Rate: $1.90

December 31,2007 Spot Rate $1.89

Mar 1, 2008 $1.84

Mattie's incremental borrowing rate is 12 percent and the present value factor for two months at a 12 percent annual rate is .9803.

What was the net impact on Mattie's 2007 income as a result of this fair value hedge of a firm commitment?

Answer:1,760.60 decrease

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