1. Given the following information for a 90-day contract:

Pesos FC

Value Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,750 5,000

Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4% 7%

3 months interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.50 87.50

Value in 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?? ??

The spot rate today is 1 FC = .75 . . . . . . . . . . . . . . . . .

What will be the forward rate?

Valley Enterprises purchases inventory of 1,000,000 foreign currency units (FCUs) from a foreign supplier on August 13 with payment due on November 1. Management of Valley Enterprises immediately enters into a forward contract to hedge this transaction. Valley prepares quarterly financial statements with a December 31 year-end. The relevant exchange rates and forward contract fair values are as follows: Nov. 1 Forward Contract Date Spot Rate Forward Rate Fair Value____ Aug. 13 P1.116 P1.120 P 0Sept. 30 P1.129 P1.126 P 6,000Nov. 1 P1.138 P1.138 P18,000

2. What is the balance in the accounts payable account on August 13?

3. What is the balance in the accounts payable account on September 30?

4. What is the amount of the exchange loss recognized with respect to the accounts payable account

on September 30?

5. What is the balance in the accounts payable account on November 1, immediately before collection?

6. What is the amount of the exchange loss recognized with respect to the accounts payable account

on November 1?

7. What is the balance in the forward contract account on August 13?

8. What is the balance in the forward contract account on September 30?

9. What is the amount of the exchange loss or gain recognized with respect to the forward contract on

September 30?

10. What is the balance in the forward contract account on November 1?

11. What is the amount of the exchange loss or gain recognized with respect to the forward contract on

November 1?

12. What is the net increase or decrease in cash flow from having entered into this forward contract hedge?

13. What is the amount of premium or discount on forward contract?