Transaction A: On Nov 30, the company purchased inventory from a vendor in the amount of 100,000 FC with payment due in 60 days. Also on Nov 30, the company purchased a forward contract to buy FC in 60 days. Changes in the value of the commitment are based on changes in forward rates.

Transaction B: On Nov 1, the company committed to provide services to a foreign customer in the amount of 100,000 FC. The services will be provided in 30 days. On Nov 1, the company also purchased a forward contract to sell 100,000 FC in 30 days. Transaction

C: On Nov 1, the company forecasted a purchase of equipment in 30 days. The forecasted cost is 100,000 FC, and the equipment is to be depreciated over 5 years using the straight line method of depreciation. On Nov 1, the company acquired a forward contract to buy 100,000 FC in 30 days. Transaction

D: On Nov 30, the company purchased an option to sell 100,000 FC in 60 days to hedge a forecasted sale to a customer in 60 days. The option sold for a premium of $1200 & had a strike price of $1.155.

The value of the option on Dec 31 was $2000. The time value of all hedging instruments is excluded from the assessment of hedge effectiveness.

Relevant spot & forward rates are as follows: Spot rate Forward rate for 30 days from Nov 1 Forward rate for 60 days from Nov 30 Nov 1 1FC=$1.12 1FC=$1.132 Nov 15 1FC=$1.13 Nov 30 1FC=$1.15 1FC=$1.146 Dec 30 1FC=$1.14 1FC=$1.138

Assuming the companys year end is Dec 31, for each of the above transactions determine the current year effect on earnings. all necessary discounting should be determined by using a 6% discount rate. For transactions C & D the time value of the hedging instrument is excluded from hedge effectiveness & is to be separately accounted for.