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

question 1

Multiple Choice

Use the following information to answer the question(s) below.
On December 1,2011,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 December 31,2011?

• A)$400.00 liability
• B)$400.00 asset
• C)$396.04 liability
• D)$396.04 asset

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