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On November 30, 2019, a U.S. company, with a December 31 year-end, enters a forward purchase contract for €100,000 to be delivered on March 20, 2020, when the forward rate for March 20 delivery is $1.23/€. The forward contract does not qualify as a hedge. At year-end, the forward rate for delivery on March 30 is $1.21/€. The company closes the contract at its expiration date, when the spot rate is $1.24/€. At what amount are gains and losses reported in income on the forward in 2019 and 2020? 2019 2020 A. $0 $1,000 gain B. $2.000 gain $3,000 loss C. $0 $1,000 loss D. $2,000 loss $3,000 gain

Respuesta :

abdullahfarooqi

Answer:

B. $2,000 gain $3,000 loss

Explanation:

Since the forward price has reduced as on year end, from $ 1.23 per euro to $1.21 per euro, resulting in gain off $ 2000 (10000÷(1.23-1.21)). On similar basis loss off $ 3000 (10000×(1.24-1 .21)

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