Portofino Company made purchases on account from three foreign suppliers on December 15, 2017, with payment made

Question:

Portofino Company made purchases on account from three foreign suppliers on December 15, 2017, with payment made on January 15, 2018. Information related to these purchases is as follows: 

Supplier Location Invoice Price 65,000 Brazilian Beija Flor Ltda. São Paulo, Brazil reals 250,000 Argentine Buenos Aires, Argentina Quetzala SA pesos Mariposa SA de Guadalajara, 400,000 Mexican CV Меxico pesos

Portofino Company’s fiscal year ends December 31. 


Required: 

Use historical exchange rate information available on the Internet at www.xrates.com to find interbank exchange rates between the U.S. dollar and each foreign currency for the period December 15, 2017, to January 15, 2018. 2. Determine the foreign exchange gains and losses that Portofino would have recognized in net income in 2017 and 2018 and the overall foreign exchange gain or loss for each transaction. Determine for which transaction it would have been most important for Portofino to hedge its foreign exchange risk. Portofino could have acquired a one-month call option on December 15, 2017, to hedge the foreign exchange risk associated with each of the three import purchases. In each case, the option would have had an exercise price equal to the spot rate at December 15, 2017, and would have cost $200. Determine for which hedges, if any, Portofino would have recognized a net gain on the foreign currency option.

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
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International Accounting

ISBN: 978-1260466539

5th edition

Authors: Timothy Doupnik, Mark Finn, Giorgio Gotti, Hector Perera

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