[Anonymous]

The question is from Wiley book 2012, MCQ 19-41

On December 12, 2010, Imp entered into three forward exchange contracts, each to purchase 100,000

francs in 90 days. The relevant exchange rates are as follows:

Forward rate Spot rate (for March 12, 2011)

11/30/2010 0.87 0.89

12/12/2010 0.88 0.90

12/31/2010 0.92 0.93

Imp entered into the third forward contract for speculation. At December 31, 2010, what amount of

foreign currency transaction gain should Imp include in income from this forward contract?

a. $0

b. $3,000

c. $5,000

d. $10,000

The correct answer is B.

I do not get the part why Imp enters into the 3rd contract, 0.93 Forward 3/12/2011 contract would end up with $3000 gain. Why the gain is a $3,000 but not 0, answer A. Imp enters the contract and locks the forward rate at 0.93, and at Dec 31, 2010, the forward rate is 0.93, isn’t that the same? So the answer is 0 gain?