On December 1,2008,Hedge Company Entered into a 60-Day Speculative Forward

question 20

Multiple Choice

On December 1,2008,Hedge Company entered into a 60-day speculative forward contract to sell 200,000 British pounds (£) at a forward rate of £1 = $1.78.On the same day it purchased a 60-day speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42.
The rates are as follows:
Hedge had no other speculation transactions in 2008 and 2009.Ignore taxes.

-Based on the preceding information,what is the effect of the British pound speculative contract on 2008 net income?

• A)$10,000 gain
• B)$6,000 gain
• C)$8,000 gain
• D)$2,000 loss

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