On December 1, 2001 Pimlico Made Sales to a Customer

question 3

Multiple Choice

On December 1, 2001 Pimlico made sales to a customer in India and recorded Accounts Receivable of 10,000,000 rupees. The customer has until March 1, 2002 to pay. On December 1, 2001, Pimlico paid $500 for a put option to sell rupees at a strike price of $2.30 per 100 rupees on March 1, 2002, which was the spot rate on December 1, 2001. On December 31, 2001, the spot rate was $2.80 per 100 rupees and the option premium was $0.004 per 100 rupees. What is the foreign currency exchange gain or loss on December 31, 2001?

• A) $50,000 loss
• B) $50,000 gain
• C) $10,000 gain
• D) $10,000 loss

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Definitions:

Open System

A system in which both energy and matter can be exchanged with its surroundings.

Mass

A physical property that reflects the amount of matter contained in an object, often measured in kilograms or grams.

Mercury (II) Oxide

Mercury (II) Oxide is an inorganic compound with the formula HgO, known for its red or orange color, used historically in the production of mercury metal.

Oxygen Gas

A diatomic molecule consisting of two oxygen atoms (O2), essential for most forms of life on Earth to perform cellular respiration.