Hedging foreign currency transactions and commitments. Medical Distributors, Inc., is a U.S. company that buys and sells used medical equipment throughout the United States and Canada. During the...

Hedging foreign currency transactions and commitments. Medical Distributors, Inc., is a U.S. company that buys and sells used medical equipment throughout the United States and Canada. During the month of June, the company had the following transactions with Canadian parties:

1. Purchased used equipment on June 1 from a hospital located in Toronto for 220,000 Canadian dollars (CA$) payable in 45 days. On the same day, the company paid $1,000 for a call option to buy 220,000 Canadian dollars during July at a strike price of 1 CA$ ¼ $0.726. The option had a fair value of $3,200 on June 30. The hedge was designated as a fair value hedge.