Measuring changes in the value of derivatives and accounting for such changes. A company has acquired two derivatives: an option to buy foreign currency (FC) and a forward contract to buy FC. Both...

Measuring changes in the value of derivatives and accounting for such changes. A company has acquired two derivatives: an option to buy foreign currency (FC) and a forward contract to buy FC. Both derivatives were acquired on the same day, for the same notional amount and expire on May 31. Relevant information involving the derivatives is as follows:

1. Calculate the intrinsic and the time value of the option for each of the above dates and indicate how the changes in each of these values would be accounted for if the option hedged:

(a) a forecasted FC transaction and (b) a recognized FC-denominated liability.