On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell 200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same day it purchased a 60-day speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42.The rates are as follows: Forward Rate for Forward Rate forDateSpot Rate Feb 1 Spot Rate Feb 1December 1, 20X8£1=$1.76 $1.78 €1=$1.40 $1.42 December 31, 20X8£1= 1.73 1.74 €1= 1.38 1.40 February 1, 20X9£1= 1.75 €1= 1.41 Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes.Based on the preceding information, what is the overall effect of speculation on 20X9 net income?
A. $1,000 loss
B. $8,000 gain
C. $3,000 loss
D. $6,000 gain
Answer: A
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