On March 1, 2011, Mattie Company Received an Order to Sell

question 29

Multiple Choice

On March 1, 2011, Mattie Company received an order to sell a machine to a customer in England at a price of 200,000 British pounds. The machine was shipped and payment was received on March 1, 2012. On March 1, 2011, Mattie purchased a put option giving it the right to sell 200,000 British pounds on March 1, 2012 at a price of $380,000. Mattie properly designates the option as a fair hedge of the pound firm commitment. The option cost $2,000 and had a fair value of $2,200 on December 31, 2011. The following spot exchange rates apply: Mattie's incremental borrowing rate is 12 percent, and the present value factor for two months at a 12 percent annual rate is .9803. What was the net increase or decrease in cash flow from having purchased the foreign currency option to hedge this exposure to foreign exchange risk?

• A) $0
• B) $10,000 increase.
• C) $10,000 decrease.
• D) $20,000 increase.
• E) $20,000 decrease.

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Definitions:

Theory of Work Adjustment

A psychological theory that suggests job satisfaction and performance result from the correspondence between an individual's abilities and values and the demands and rewards of a job.

TWA

Stands for Theory of Work Adjustment, a framework that describes how individuals seek to achieve and maintain correspondence with their work environment.

Workplace Requirements

The set of conditions or tasks that are necessary for the operation of a job or workplace environment.

Individual Requirements

Refers to the unique needs or conditions necessary for a person to effectively perform or engage in a specific task or activity.