On December 1, 2011, Keenan Company, a U

question 21

Multiple Choice

On December 1, 2011, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD) . Collection of the receivable is due on February 1, 2012. Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2011. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow: Compute the fair value of the foreign currency option at December 31, 2011.

• A) $6,000.
• B) $4,500.
• C) $3,000.
• D) $7,500.
• E) $1,500.

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