Question
Example: A company anticipates that a long-term customer will require delivery of 1,000,000 euros of goods on March 1, 2022, so they decide to hedge
Example: A company anticipates that a long-term customer will require delivery of 1,000,000 euros of goods on March 1, 2022, so they decide to hedge the risk associated with this forecasted transaction by entering into a forward contract on Dec 1, 2021 at a rate of 0.905. Relevant rates and fair values are as follows:
|
|
| Forward contract | |
|
Date | Forward rate to 3/1/22 |
Fair value |
Change in fair value |
| 12/1/21 | $0.905 | -0- | -- |
| 12/31/21 | 0.916 | $(10,783) | -$10,783 |
| 3/1/22 | 0.900 (spot) | 5,000 | +$15,783 |
a)Entries on 12/1/21:?
b)Entries on 12/31/21:?
c)Entries on 3/1/22:?
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
Accounting
Authors: Carl S. Warren, Philip E. Fess, James M. Reeve, C.Rollin Niswonger, Jim Reeve
18th Edition
0538839333, 978-0538839334
