On December 1, 20X8, Hedge Company Entered into a 60-Day

question 58

Multiple Choice

On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell 200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same day it purchased a 60-day speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42.
The rates are as follows:
Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes.
Based on the preceding information, what is the overall effect of speculation on 20X8 net income?

• A) $4,000 gain
• B) $6,000 gain
• C) $8,000 loss
• D) $8,000 gain

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Definitions:

Amount

The total sum or quantity of something, often specified in terms of money or units.

Interest

The cost of borrowing money, usually expressed as a percentage of the amount borrowed.

Tax Rate

The specific ratio of income that must be given to the government as tax by both people and companies.

Budgeting Process

A systematic approach where businesses estimate their future income, expenditures, and capital needs to achieve their financial goals.