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On December 1, 2013, Keenan Company, a U

Question 77

Multiple Choice

On December 1, 2013, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD) . Collection of the receivable is due on February 1, 2014. Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2013. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow: On December 1, 2013, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD) . Collection of the receivable is due on February 1, 2014. Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2013. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow: Compute the fair value of the foreign currency option at December 31, 2013. A) $6,000. B) $4,500. C) $3,000. D) $7,500. E) $1,500. Compute the fair value of the foreign currency option at December 31, 2013.


A) $6,000.
B) $4,500.
C) $3,000.
D) $7,500.
E) $1,500.

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