On 1/1/06, Forcax purchased an at-the-money foreign currency put option from an FX trader involving 1,000,000 euros at a cost of $14,000. The option expires on 12/31/06 and is exercisable at $.85. The option was (a) obtained to hedge Forcax's budgeted 2006 export sales to Germany and (b) exercised on 12/31/06. For simplicity, assume that the only interim reporting date was 6/30/06, when the option's fair value was $54,000. Actual export sales to Germany for the first six months of 2006 were 400,000 euros. Direct exchange rates for the euro are as follows:
Required:
Prepare all journal entries relating to the FX option.

Question

On 1/1/06, Forcax purchased an at-the-money foreign currency put option from an FX trader involving 1,000,000 euros at a cost of $14,000. The option expires on 12/31/06 and is exercisable at $.85. The option was (a) obtained to hedge Forcax's budgeted 2006 export sales to Germany and (b) exercised on 12/31/06. For simplicity, assume that the only interim reporting date was 6/30/06, when the option's fair value was $54,000. Actual export sales to Germany for the first six months of 2006 were 400,000 euros. Direct exchange rates for the euro are as follows:
  Required:
Prepare all journal entries relating to the FX option.

Quizplus · Accepted Answer

The Answer of On 1/1/06, Forcax purchased an at-the-money foreign currency put option from an FX trader involving 1,000,000 euros at a cost of $14,000. The option expires on 12/31/06 and is exercisable at $.85. The option was (a) obtained to hedge Forcax's budgeted 2006 export sales to Germany and (b) exercised on 12/31/06. For simplicity, assume that the only interim reporting date was 6/30/06, when the option's fair value was $54,000. Actual export sales to Germany for the first six months of 2006 were 400,000 euros. Direct exchange rates for the euro are as follows:
  Required:
Prepare all journal entries relating to the FX option.

On 1/1/06, Forcax Purchased an At-The-Money Foreign Currency Put Option