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

question 4

Multiple Choice

Use the following information to answer the question(s) below.

On December 1, 2014, 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 January 30?

• A)$796 liability
• B)$796 asset
• C)$800 liability
• D)$800 asset

---

Definitions:

Marginal Revenue

The additional income that a firm earns from selling one more unit of a good or service, critical for determining optimal production levels.

Total Profit

The total revenue of a business after subtracting all costs and expenses related to its operation.

Profit Per Unit

Profit per unit is the amount of money earned from selling one unit of a product or service, calculated by subtracting the cost per unit from the selling price per unit.

Break-even Point

The level of production at which total revenues equal total costs, resulting in neither profit nor loss.