Question
A U.S. company anticipates that it will sell merchandise for 100,000 at the end of August and receive payment for it at the end of
A U.S. company anticipates that it will sell merchandise for 100,000 at the end of August and receive payment for it at the end of October. On May 1, when the spot rate is $1.20 and the forward rate for delivery on October 31 is $1.21, the company enters a forward contract to sell 100,000 on October 31. The forward contract qualifies as a cash flow hedge of the forecasted sale. The company sells the merchandise on August 30, when the spot rate is $1.232 and the forward rate for October 31 delivery is $1.23 and receives payment of 100,000 and closes the forward contract on October 31, when the spot rate is $1.24. The company has a December 31 year-end. What is the net exchange gain/loss for the year related to this transaction?
| A. | $200 net gain | |
| B. | $1,800 net loss | |
| C. | $-0- | |
| D. | $200 net loss |
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Auditing Cases An Active Learning Approach
Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt
2nd Edition
9781266566899
