Question

On December 1, 20x1 Sally made a sale to a customer in France; the sales price...

On December 1, 20x1 Sally made a sale to a customer in France; the sales price was 100,000 Euros. The customer had until March 1, 20x2 to pay. On the same day, December 1, 20x1, Sally paid $1,000 for a put option to sell Euros at a strike price of $1.10 per Euro on March 1, 20x2; $1.10 per Euro was also the spot rate on December 1, 20x1. On December 31, 20x1, the spot rate was $1.20 per Euro and the put option’s fair market value was $0.02 per Euro.

Assume there was no put option or any other hedge. In other words, assume Sally had solely the account receivable from the customer in France, with no option or forward contract to hedge the account receivable.

What is Sally’s foreign currency exchange gain or loss on December 31, 20x1?

A. $10,000 gain

B. $110,000 gain

C. $10,000 loss

D. $110,000 loss

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