A U.S. company expects to buy merchandise from a Canadian supplier for approximately C\($1,000,000\), in the middle of April. On November 15, 2016, the company enters a forward contract locking in the U.S. dollar purchase price of C\($1,000,000\), for delivery on April 15, 2017. The forward qualifies as a hedge of the forecasted transaction. Delivery of the merchandise takes place on April 15, 2017, and the forward contract is closed and payment is made to the supplier. At what amount is the merchandise reported on delivery on April 15, 2017?

Use the following forward and spot prices for Canadian dollars (C\($)\) to answer this question. The prices are in U.S. dollars (\($/C$).

a. \($895,000\)

b.   \($905,000\)

c. \($940,000\)

d. \($950,000\)

Transcribed Image Text:

Spot Forward rate for 4/15/17 delivery of rate Canadian dollars November 15, 2016 $0.905 $0.895 December 31, 2016 0.965 0.950 March 1, 2017 0.920 0.915 April 15, 2017 0.940 0.940