On January 1, Madison Co. ordered raw material from Japan and agreed to pay 100 million yen for this order on April 1. It negotiated a 3-month forward contract to obtain 100 million Japanese yen on that date at $.009. On February 1, the Japanese firm informed Madison Co. that it wouldn't be able to fulfill the order. The Japanese yen spot rate on February 1 is $.0087, and the 2-month forward rate exhibits a 3 percent discount. To offset its existing contract, Madison Co. will negotiate a forward contract to ____ for the date of April 1, and the profit/loss generated from this transaction is a ____ U.S. dollars.

Question

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Madison Co. had negotiated a 3-month forward contract to obtain 100 million Japanese yen on April 1 at a rate of $.009. However, the Japanese firm informed Madison Co. that it could not fulfill the order on February 1. 
Now, Madison Co. needs to offset its existing contract by negotiating a new forward contract. It is mentioned that the 2-month forward rate exhibits a 3 percent discount. Therefore, the new forward rate for April 1 would be $.009 - (3% of $.009) = $.00873. Madison Co. will now be able to sell 100 million Japanese yen on April 1 for $.00873 per yen. 
To calculate the profit/loss generated from this transaction, we need to compare the old contracted rate and the new contracted rate. 
The old rate was $.009 per yen, which means Madison Co. would have paid $900,000 for 100 million yen on April 1. 
The new rate is $.00873 per yen, which means Madison Co. will now receive $873,000 for 100 million yen on April 1. 
Therefore, Madison Co. will incur a loss of $900,000 - $873,000 = $27,000. However, since the question asks for the profit/loss generated from this transaction, we need to flip the sign of this amount, resulting in a loss of $27,000. Hence, the correct answer is B.