Question: irm AAA is located in the U.S.. It has purchase from a Germany firm 1,000,000 worth of product. The payable will be processed a year

irm AAA is located in the U.S.. It has purchase from a Germany firm 1,000,000 worth of product. The payable will be processed a year later. Refer to the following for details.

The current spot exchange rate is $1.40/euro

The one year forward rate is $1.30/euro

The Euro zone annual interest rate = 2%

The U.S. annual interest rate = 3%

Call options for euro has a strike price $1.38, premium price is $0.02

Question: If firm AAA locks in the forward hedge at $1.30/euro, and the spot rate when the transaction was recorded on the books was $1.40/euro, this will result in a "foreign exchange accounting transaction ________" of ________.

gain; euro 50,000

loss; euro 50,000

loss; $100,000

gain; $100,000

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