Use the information for following problem(s).

Firm 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