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Company A prepares annual financial statements at December 31. Company A sells inventory to a Spanish customer on December 1, Year3 for 200,000 euros. Company
Company A prepares annual financial statements at December 31. Company A sells inventory to a Spanish customer on December 1, Year3 for 200,000 euros. Company A collects from the customer on March 31, Year4. Relevant exchange rate information for Euros are as follows. Spot rate Forward rate to 3/31| December 1, Year3|| 1.25 1.30 December 31, Year3|| 1.40 L 1.42 | March 31, Year4 | 1.35 1.35 For Questions 1-2 assume Company A does not hedge the receivable. 1. What does Company A report as a foreign exchange gain (G) or loss (L) in Year3 for this sales transaction. 2. What does Company A report as a foreign exchange gain (G) or loss (L) in Year4 for this sales transaction. Now assume Company A enters into a forward contract on 12/31/Year3. 3. In total, over the 4 month span of this transaction, what will be the effect on net income as a result of foreign currency fluctuation? (Another way to word this: what overall gain or loss was locked in by entering the forward contract?) Enter all numbers as positive amounts. Put a Gor L directly after your numeric answer to indicate gain or loss. (Example: enter a $14,000 loss as 14000L )
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