On June 30 of the current year, Ester Company entered into a firm commitment to purchase equipment from Nagasaki Company for 80,000,000 yen on August 31. The exchange rate on June 30 is 100 yen = $1. To reduce the exchange rate risk that could increase the cost of the equipment in US dollars, the entity paid $12,000 for a call option contract. The contract gave the entity the option to purchase 80,000,000 yen at an exchange rate of 100 yen = $1 on August 31. On August 31, the exchange rate is 93 yen = $1. What amount in US dollars did the entity save by purchasing the call option? A. 12,000 C. 60,215 B. 48,215 D. 0

On June 30 of the current year, Ester Company entered into a firm commitment to purchase equipment from Nagasaki Company for 80,000,000 yen on August 31. The exchange rate on June 30 is 100 yen = $1. To reduce the exchange rate risk that could increase the cost of the equipment in US dollars, the entity paid $12,000 for a call option contract. The contract gave the entity the option to purchase 80,000,000 yen at an exchange rate of 100 yen = $1 on August 31. On August 31, the exchange rate is 93 yen = $1. What amount in US dollars did the entity save by purchasing the call option? A. 12,000 C. 60,215 B. 48,215 D. 0

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter13: Marketable Securities And Derivatives

Section: Chapter Questions

Problem 21E

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