On November 1, 2012, Galaxy Philippines took delivery from a Thailand firm of inventory costing 225,000 baht. Payment is due on January 30, 2013. Concurrently, Galaxy Philippines paid 2,025 cash to acquire a 90-day call option for 225,000 Thailand baht:

11/1/2012 12/31/12 1/30/2013

Spot rate 1.20 1.22 1.23

Strike price 1.20 1.20 1.20

Fair value 2.025 4,950 6,750

1. The foreign exchange gain or loss on option contract (hedging instrument) due to change in time value on December 31, 2012 if changes in the time value will be excluded from the assessment of hedge effectiveness should be:

a. 1,575 loss b. 2,925 gain c. 4,500 loss d. 4,500 gain

2. The foreign exchange gain or loss on option contract (hedging instrument) due to change in intrinsic value on December 31, 2012 if changes in time value will be excluded from the assessment of hedge effectiveness should be:

a. 4,500 gain b. 1,575 loss c. 2,925 gain d. 1,575 gain

3. The foreign exchange gain or loss on option contract (hedging instrument) on December 31, 2012 if changes in the time value will be included from the assessment of hedge effectiveness should be

a. 1,575 loss b. 2,925 gain c. 1,575 gain d. 4,500 gain