Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Assume our U . S . - based company s functional currency is the $US dollar and it enters into a forecasted transaction with an
Assume our USbased companys functional currency is the $US dollar and it enters into a forecasted transaction with an Englandbased retailer on December The forecasted transaction requires our company to sell units of an inventory item costing each to the English company. Our company is contractually committed to ship the inventory ie title transfers on March with payment in British pounds on the same date. Our company does recurring business with the English company, but this arrangement does not qualify as a firm commitment. Also assume, on December our company enters into a contract with a foreign currency exchange broker to sell British pounds for settlement on March to mitigate the risk of exchange rate fluctuation. This derivative qualifies as a cash flow hedge. The relevant exchange rates and related balances for the period from December to March are as follows: DerivativeForward Date Spot Rate $US Forward Ratea $US FVb Change in FV December December $ $ March a For settlement on March b Ignore discounting in the computation of fair values. For the quarter ended December what amount will our company recognize in other comprehensive income? Select one: a The gains and losses will net to $ in other comprehensive income b $ of gains in other comprehensive income c $ of losses in other comprehensive income d $ of gains in other comprehensive income
Assume our USbased companys functional currency is the $US dollar and it enters into a forecasted transaction with an Englandbased retailer on December The forecasted transaction requires our company to sell units of an inventory item costing each to the English company. Our company is contractually committed to ship the inventory ie title transfers on March with payment in British pounds on the same date. Our company does recurring business with the English company, but this arrangement does not qualify as a firm commitment. Also assume, on December our company enters into a contract with a foreign currency exchange broker to sell British pounds for settlement on March to mitigate the risk of exchange rate fluctuation. This derivative qualifies as a cash flow hedge. The relevant exchange rates and related balances for the period from December to March are as follows:
DerivativeForward Date Spot Rate
$US Forward Ratea
$US FVb Change in FV December December $ $ March
a For settlement on March
b Ignore discounting in the computation of fair values.
For the quarter ended December what amount will our company recognize in other comprehensive income?
Select one:
a The gains and losses will net to $ in other comprehensive income
b $ of gains in other comprehensive income
c $ of losses in other comprehensive income
d $ of gains in other comprehensive income
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started