On December 1, 20x1 Pimlico made sales to a customer in India and recorded Accounts Receivable of 10,000,000 rupees. The customer has until March 1, 20x2 to pay. On December 1, 20x1, Pimlico paid $500 for a put option to sell rupees at a strike price of $2.30 per 100 rupees on March 1, 20x2, which was the spot rate on December 1, 20x1. On December 31, 20x1, the spot rate was $2.80 per 100 rupees and the option premium was $0.004 per 100 rupees.

49. What is the fair value of the option on December 1, 20x1?

A) $0

B) $500

C) $400

D) $10,000

50. What is the fair value of the option on December 31, 20x1?

A) $0

B) $500

C) $400

D) $10,000

51. What is the foreign currency exchange gain or loss on December 31, 20x1?

A) $50,000 loss

B) $50,000 gain

C) $10,000 gain

D) $10,000 loss

52. If the spot rate on March 1, 20x2 was $2.45 per 100 rupees, what is the foreign currency exchange gain or loss that should be recorded that day?

A) $15,000 gain

B) $15,000 loss

C) $35,000 gain

D) $35,000 loss

Answer rating: 100% (QA)

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