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Unformatted text preview: Foreign Currency 1,340,000 2. Amortization of Option Expenses Refer to the example on page 396 in the section Option Designated as Cash Flow Hedge If you read the text book carefully, you can see that the option expenses are calculated based on the change in time value of the option (see the table on the top of the page 396). You can simply the calculation of option expenses by using straight line method: in this example, total option is $9,000 over three months, so each month, the option expense is $3,000. In this example, the amount of option expense happens to be exactly the same under both the change in time value method (as shown in the book example) or under the straight line method. Hope this is clear....
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- Fall '11