9-1 Option Hedge On June 1, Wellmax Co. (a U.S.-based company) sold goods to a foreign customer for 1,040,000 pesos. The customer will September 1. On June 1, Wellmax bought an option (strike price = $0.066) to sell 1,040,000 pesos on September 1. The ti value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in income over the life of the option. The foreign currency option is designated a fair value hedge. Relevant exchange rates option premia follow. June 1 June 30 September 1 Date Spot Rate $0.066 0.065 0.064 Put Option Premium for September 1 (strike price $0.066) $0.0029 0.0024 N/A
9-1 Option Hedge On June 1, Wellmax Co. (a U.S.-based company) sold goods to a foreign customer for 1,040,000 pesos. The customer will September 1. On June 1, Wellmax bought an option (strike price = $0.066) to sell 1,040,000 pesos on September 1. The ti value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in income over the life of the option. The foreign currency option is designated a fair value hedge. Relevant exchange rates option premia follow. June 1 June 30 September 1 Date Spot Rate $0.066 0.065 0.064 Put Option Premium for September 1 (strike price $0.066) $0.0029 0.0024 N/A
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
do not give answer in image format
Transcribed Image Text:9-1 Option Hedge
On June 1, Wellmax Co. (a U.S.-based company) sold goods to a foreign customer for 1,040,000 pesos. The customer will pay on
September 1. On June 1, Wellmax bought an option (strike price = $0.066) to sell 1,040,000 pesos on September 1. The time
value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net
income over the life of the option. The foreign currency option is designated a fair value hedge. Relevant exchange rates and
option premia follow.
Date
June 1
June 30
September 1
What is the fair value of the option contract on June 1?
Spot Rate
$0.066
0.065
0.064
Put Option Premium for September 1
(strike price $0.066)
$0.0029
0.0024
N/A
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education