On December 1, 2021, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable is due on February 1, 2022. Keenan purchased a foreign currency put option with a strike price of $0.97 (U.S.)on December 1, 2021. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow: Compute the fair value of the foreign currency option at December 1, 2021.
A)$6,000.
B)$4,500.
C)$3,000.
D)$7,500.
E)$1,500.

Question

On December 1, 2021, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable is due on February 1, 2022. Keenan purchased a foreign currency put option with a strike price of $0.97 (U.S.)on December 1, 2021. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow:  Compute the fair value of the foreign currency option at December 1, 2021.
A)$6,000. 
B)$4,500. 
C)$3,000. 
D)$7,500. 
E)$1,500.

Quizplus · Accepted Answer

The Answer of On December 1, 2021, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable is due on February 1, 2022. Keenan purchased a foreign currency put option with a strike price of $0.97 (U.S.)on December 1, 2021. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow:  Compute the fair value of the foreign currency option at December 1, 2021.
A)$6,000. 
B)$4,500. 
C)$3,000. 
D)$7,500. 
E)$1,500.