Torres Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of

Question:

Torres (a U.S.-based company) expects to order goods from a foreign supplier at a price of 100,000 pounds, with delivery and payment to be made on September 20. On July 20, Torres purchased a two-month call option on 100,000 pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction. The option has a of $1.25 per pound and costs $600. The spot rate for pounds is $1.25 on June 20 and $1.30 on September 20. What amount will Torres report as an option expense in net income for the quarter ended September 30?
a. $300
b. $600
c. $2,000
d. $5,000
Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...