Question: A firm buys, and designates, an effective forward contract to hedge the price risk of its current stock of inventory. Suppose that the inventory is

A firm buys, and designates, an effective forward contract to hedge the price risk of its current stock of inventory. Suppose that the inventory is still on hand at period- end, and that its market value has fallen. Will application of the lower- of- cost- or- market rule to write down the inventory to market affect net income? Explain why or why not.

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