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Woolsey Corporation, a US company, expects to sell gods to a foreign customer at a price of 250,000 FC, with delivery and payment to be made on October 24, 2020. On July 24, 2020, Woolsey purchased a three-month put option for 250,000 FC and designated this option as a cash flow hedge of a forecasted foreign currency transaction expected to be completed in late October 2020. Assume that the transaction occurs on October 24, 2020 as expected. The option cost $4,000 and has a strike price of $2.17 per FC. The following spot exchange rates apply:

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Answer:

$10,000 positive.

Explanation:

The computation of the amount that should be included is shown below:

= (Option strike price - spot rate) × purchased put options

= ($2.17 - $2.13) × 250,000

= $10,000

As the spot rate is less than the strike price so automatically there is a gain of $10,000:

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