Use the following information to answer the question(s)below.
On December 1,2014,Thomas Company,a U.S.corporation,purchases inventory from a vendor in Italy for 400,000 euros.Payment is due in 90 days.To hedge the transaction,Thomas signs a forward contract to buy 400,000 euros in 90 days at $1.3670.Thomas uses a discount rate of 6% (present value factor for 30 days = .9950;60 days = .9901;90 days = .9851).Assume the forward contract will be settled net and this is a cash flow hedge.Currency exchange rates are shown below:

-What is the fair value of the forward contract at February 29?
A)$-0-
B)$1,654.97 asset
C)$1,654.97 liability
D)$1,680 asset

Question

Use the following information to answer the question(s)below.
On December 1,2014,Thomas Company,a U.S.corporation,purchases inventory from a vendor in Italy for 400,000 euros.Payment is due in 90 days.To hedge the transaction,Thomas signs a forward contract to buy 400,000 euros in 90 days at $1.3670.Thomas uses a discount rate of 6% (present value factor for 30 days = .9950;60 days = .9901;90 days = .9851).Assume the forward contract will be settled net and this is a cash flow hedge.Currency exchange rates are shown below:
 
-What is the fair value of the forward contract at February 29?
A)$-0- 
B)$1,654.97 asset 
C)$1,654.97 liability 
D)$1,680 asset

Quizplus · Accepted Answer

The Answer is D

Use the Following Information to Answer the Question(s)below