On November 1, 2017, Dos Santos Company forecasts the purchase of raw materials from a Brazilian supplier on February 1, 2018, at a price of 200,000 Brazilian reals. On November 1, 2017, Dos Santos pays $1,500 for a three-month call option on 200,000 reals with a strike price of $0.40 per real. Dos Santos properly designates the option as a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2017, the option has a fair value of $1,100. The following spot exchange rates apply: Date U.S. Dollar per Brazilian real November 1, 2017 $0.40 December 31, 2017 0.38 February 1, 2018 0.41 What is the net impact on Dos Santos Company’s 2017 net income as a result of this hedge of a forecasted foreign currency transaction? Choose the correct.a. $–0–.b. $400 decrease in net income.c. $1,000 decrease in net income.d. $1,400 decrease in net income.
On November 1, 2017, Dos Santos Company
| Date | U.S. Dollar per Brazilian real |
| November 1, 2017 | $0.40 |
| December 31, 2017 | 0.38 |
| February 1, 2018 | 0.41 |
What is the net impact on Dos Santos Company’s 2017 net income as a result of this hedge of a forecasted foreign currency transaction? Choose the correct.
a. $–0–.
b. $400 decrease in net income.
c. $1,000 decrease in net income.
d. $1,400 decrease in net income.
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