Question
On October 1, 2021, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2022, at a price of 100,000 British
On October 1, 2021, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2022, at a price of 100,000 British pounds. On October 1, 2021, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2021, the option has a fair value of $1,600. The following spot exchange rates apply:
| Date | Spot Rate | ||
| October 1, 2021 | $ | 2.00 | |
| December 31, 2021 | $ | 1.97 | |
| February 1, 2022 | $ | 2.01 | |
What is the balance in the Foreign Currency Option account on December 31, 2021?
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Intermediate Microeconomics
Authors: Hal R. Varian
9th edition
978-0393123975, 393123979, 393123960, 978-0393919677, 393919676, 978-0393123968
