Fernz Ltd, a New Zealand company, has purchased US$600,000 of products from the US and t wishes to hedge the currency risk associated with this transaction. Fernz Ltd will pay in exactly two months' time. At the time of purchase, the spot rate of exchange is US$0.80, that is, NZ$1.00 buys US$0.80. Assume that Fernz Ltd prepares monthly accounts. The spot exchange rate one month after the purchase is US$0.82, and the spot exchange rate two months after the purchase (i.e., at settlement) is US$0.84. Required For each of the following independent scenarios (a), (b), and (c): Show all workings clearly. (a) Fernz Ltd decides not to hedge. Show the journal entry to record the purchase and any additional journal entries that are required through to (and including) settlement. Also calculate the overall gain or loss from accounts payable 4 marks) (b) Fernz Ltd decides to hedge. The company enters into the forward agreement with the bank in which Fernz will buy US$600,000 and pay the bank agreed amount of NZS at settlement i.e., two months after the purchase) at the agreed forward rate of USSO.78. The relevant spot rates and forward rates from the date of purchase to the settlement are shown in the table below. Show the journal_entry to record the purchase and any_additional journal_entries that are required through to (and including) settlement. Also calculate the overall gain or loss from both the accounts payable and forward contract. Fernz Ltd, a New Zealand company, has purchased US$600,000 of products from the US and t wishes to hedge the currency risk associated with this transaction. Fernz Ltd will pay in exactly two months' time. At the time of purchase, the spot rate of exchange is US$0.80, that is, NZ$1.00 buys US$0.80. Assume that Fernz Ltd prepares monthly accounts. The spot exchange rate one month after the purchase is US$0.82, and the spot exchange rate two months after the purchase (i.e., at settlement) is US$0.84. Required For each of the following independent scenarios (a), (b), and (c): Show all workings clearly. (a) Fernz Ltd decides not to hedge. Show the journal entry to record the purchase and any additional journal entries that are required through to (and including) settlement. Also calculate the overall gain or loss from accounts payable 4 marks) (b) Fernz Ltd decides to hedge. The company enters into the forward agreement with the bank in which Fernz will buy US$600,000 and pay the bank agreed amount of NZS at settlement i.e., two months after the purchase) at the agreed forward rate of USSO.78. The relevant spot rates and forward rates from the date of purchase to the settlement are shown in the table below. Show the journal_entry to record the purchase and any_additional journal_entries that are required through to (and including) settlement. Also calculate the overall gain or loss from both the accounts payable and forward contract
