On March 1,Suki Corporation Entered into a Firm Commitment to Purchase

question 47

Multiple Choice

On March 1,Suki Corporation entered into a firm commitment to purchase specialized equipment from the Sashimi Trading Company for ¥80,000,000 on June 1.The exchange rate on March 1 is ¥100 = $1.To reduce the exchange rate risk that could increase the cost of the equipment in U.S.dollars,Suki pays $20,000 for a call option contract.This contract gives Suki the option to purchase ¥80,000,000 at an exchange rate of ¥100 = $1 on June 1.On June 1,the exchange rate is ¥105 = $1.How much did Suki save by purchasing the call option (answers rounded to the nearest dollar) ?

• A) $20,000
• B) $27,619
• C) $47,619
• D) Suki would have been better off not to have purchased the call option.

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Definitions:

Herbivores

Animals that primarily consume plant material such as leaves, stems, and roots, playing key roles in ecosystems by transferring energy from plants to other trophic levels.

Rodents

A diverse group of mammals characterized by their continuously growing incisors, including mice, rats, squirrels, and beavers.

Lobe-Finned Fishes

Fish species characterized by fleshy, lobed, paired fins, which are believed to be the ancestors of amphibians and other land vertebrates.

Tetrapods

Vertebrates with four limbs or limb-like appendages, including amphibians, reptiles, birds, and mammals.