Assuming that MNC did not enter into a forward contract, how much foreign exchange gain or loss should it report on its 2011 income statement with regard to this transaction?

a. $5,000 gain.

b. $3,000 gain.

c. $2,000 loss.

d. $1,000 loss.

MNC Corp. (a U.S.-based company) sold parts to a South Korean customer on December 1, 2011, with payment of 10 million South Korean won to be received on March 31, 2012. The following exchange rates apply:

MNC’s incremental borrowing rate is 12 percent. The present value factor for three months at an annual interest rate of 12 percent (1 percent per month) is 0.9706.

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Date December 1, 2011 December 31, 2011 March 31, 2012 Spot Rate $0.0035 0.0033 0.0038 Forward Rate (to March 31, 2012) $0.0034 0.0032 N/A