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

Question

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

Quizplus · Accepted Answer

The speculative contract resulted in an $8,000 gain, which positively affected the 2008 net income.

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