A U.S. company expects to sell £100,000 in merchandise to a customer in the U.K. in three months. To protect against a strengthening U.S. dollar on November 1 the company pays $3,000 for January put options on £100,000, with a strike price of $1.40/£. The current spot rate is $1.38/£. The intrinsic value of the options is designated as a cash flow hedge of the forecasted sale, and changes in time value are reported in income. Income effects of the sale and the options through time value are reported in sales revenue (not COGS). On December 31, the company's year-end, the spot rate is $1.375/£ and the options have a market value of $3,200. On January 31, the spot rate is $1.35/£, and the company sells the options for their intrinsic value. The company delivers the merchandise, receives payment in pounds sterling, and converts the currency to U.S. dollars at the spot rate. The company's year-end is December 31.

When the intrinsic and time values are adjusted at year end, what is the impact on OCI?

Answer rating: 100% (QA)

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