Reference no: EM133019968

Question - On 1 December 20x1, Pimlico made sales to a customer in India and recorded Accounts Receivable of 10,000,000 rupees. The customer has until 1 March 20x2 to pay. On 1 December 20x1, Pimlico paid $500 for put options to sell the amount of rupees in consideration at a strike price of $2.30 per 100 rupees on 1 March 20x2, which was also the spot rate on 1 December 20x1. On 31 December 20x1, the spot rate was $2.80 per 100 rupees and the option premium was $0.004 per 100 rupees.

1. What is the fair value of the option on 1 December 20x1?

A) $0

B) $500

C) $400

D) $10,000

2. What is the fair value of the option on 31 December 20x1?

A) $0

B) $500

C) $400

D) $10,000

3. What is the foreign currency exchange gain or loss on 31 December 20x1?

A) $50,000 loss

B) $50,000 gain

C) $10,000 gain

D) $10,000 loss