On October 1, 2011, Eagle Company Forecasts the Purchase of Inventory

question 60

Multiple Choice

On October 1, 2011, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2012, at a price of 100,000 British pounds. On October 1, 2011, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2011, the option has a fair value of $1,600. The following spot exchange rates apply:

What is the amount of option expense for 2012 from these transactions?

• A) $1,000.
• B) $1,600.
• C) $2,500.
• D) $2,600.
• E) $0.

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Definitions:

Job Satisfaction

The level of contentment employees feel about their work, which can affect their performance and overall well-being.

Organizational Behavior

The study of how individuals and groups interact within an organization, focusing on ways to improve efficiency and productivity.

Cognitive Dissonance

The mental discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time.

Job Satisfaction

The level of contentment employees feel towards their jobs, involving aspects like work environment, duties, and compensation.