On January 1^st, Madison Co

Multiple Choice

On January 1^st, Madison Co. ordered raw material from Japan and agreed to pay 100 million yen for this order on April 1^st. It negotiated a 3-month forward contract to obtain 100 million Japanese yen on that date at $.009. On February 1^st, the Japanese firm informed Madison Co. that it won't be able to fulfill that order. The Japanese yen spot rate on February 1^st is $.0087 and 2-month forward rate exhibits 3% discount. To offset its existing contract Madison Co. will negotiate a forward contract to ____ for the date of April 1^st and the profit/loss generated from this transaction is a ____ U.S. dollars.

A) sell yen; gain of $60,000
B) sell yen; loss of $60,000
C) buy yen; gain of $30,000
D) to buy yen; loss of $30,000