Question

On November 1 of the current year, Patriot Inc. purchased acontainer of electrical components from its supplier in Japan.Patriot agreed to pay 15,000,000 ¥ in 90 days. The exchange rate onNovember 1 was $1 = 120 ¥. Patriot decided to hedge the transactionand entered into a 90 day forward contract to purchase yen at acost of $1 = 125 ¥. The 60 day forward rate that would take Patriotto the December 31 fiscal year end was $1 = 127.50 ¥. On December31, the spot rate was $1 = 118 ¥, and the 30-day forward rate was$1 = 122 ¥. What is the balance in the forward contract account onNovember 1 of the current year? (For purposes of this exercise, usea present value factor of 1.)

A) $0

B) $5,000 debit

C) $5,000 credit

D) $2,353 debit

E) $7,353 credit