A Business Plans to Acquire a Forward Contract to Hedge

Multiple Choice

A business plans to acquire a forward contract to hedge a monetary liability. Which of the following statements about the forward contract is true?

A) If the contract is acquired at a premium, a loss results, and if the contract is acquired at a discount, a gain results.
B) If the contract is acquired at a premium, a gain results, and if the contract is acquired at a discount, a loss results.
C) Since the contract is to hedge a monetary liability, a loss results, regardless of whether the contract is acquired at a premium or a discount.
D) Since the contract is to hedge a monetary liability, a gain results, regardless of whether the contract is acquired at a premium or a discount.