Use the Information for the Following Problem(s)

question 18

Multiple Choice

Use the information for the following problem(s) .
Plains States Manufacturing has just signed a contract to sell agricultural equipment to Boschin, a German firm, for euro 1,250,000. The sale was made in June with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in euros rather than dollars, Plains States is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information.
∙ The spot exchange rate is $1.40/euro
∙ The six month forward rate is $1.38/euro
∙ Plains States' cost of capital is 11%
∙ The Euro zone 6-month borrowing rate is 9% (or 4.5% for 6 months)
∙ The Euro zone 6-month lending rate is 7% (or 3.5% for 6 months)
∙ The U.S. 6-month borrowing rate is 8% (or 4% for 6 months)
∙ The U.S. 6-month lending rate is 6% (or 3% for 6 months)
∙ December put options for euro 625,000; strike price $1.42, premium price is 1.5%
∙ Plains States' forecast for 6-month spot rates is $1.43/euro
∙ The budget rate, or the lowest acceptable sales price for this project, is $1,075,000 or $1.35/euro
-Refer to Instruction 10.1.If Plains States locks in the forward hedge at $1.38/euro,and the spot rate when the transaction was recorded on the books was $1.40/euro,this will result in a "foreign exchange loss" accounting transaction of ________.

• A)$0
• B)$25,000
• C)This was not a loss; it was a gain of $25,000.
• D)There is not enough information to answer this question.

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Definitions:

Positive Symptom

Positive Symptom refers to an excess or distortion of normal functions, such as hallucinations or delusions, often observed in psychiatric conditions.

Schizophrenia

A mental disorder characterized by distorted thinking, perceptions, emotions, language, sense of self, and behavior.

Delusions

Fixed false beliefs that are resistant to reason or confrontation with actual fact, often found in psychotic disorders.

Schizophrenia

A persistent mental illness that disrupts the connection among thinking, feeling, and acting, causing incorrect perceptions, actions, and emotions, isolation from the actual world and personal ties in favor of fantasy and delusion, and an experience of mental disunity.