Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

In January 15, our company enters into an agreement to buy product from one of our Canadian suppliers that will be delivered at the end

image text in transcribed
image text in transcribed
In January 15, our company enters into an agreement to buy product from one of our Canadian suppliers that will be delivered at the end of March. The contract obligates us to pay CAD5,000,000 (Canadian dollars) on April 30. The contract meets the requirements of a firm commitment and our functional cur- rency is the $US. In February, we believed that the $US would weaken vis--vis the CAD, thus increas- ing the $US value of the payable denominated in Canadian dollars (CAD), and we decided to hedge the foreign currency exposure by purchasing a forward contract to exchange $3,500,000 for CAD5,000,000 on April 30, 20X1 (forward rate of $0.70:CAD$1). This forward contract was designated as a hedge of the firm commitment and effectiveness will be assessed based on the forward rates. The relevant exchange rates over the period of this contract are as follows: Spot Rate (SUS:CAD) Forward Rate (SUS:CAD) Date January 15 ......... February 1 ..... February 28 ................... March 31. ... ... April 30............ $0.6897 $0.7143 $0.7143 $0.7092 $0.7353 $0.7000 $0.7067 $0.7143 $0.7353 a. b. c. Compute the value of the forward contract as of the end of February, March, and April. Prepare appropriate journal entries as of the end of February, March, and April. Briefly describe the economics of this transaction

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Audit Committee Handbook

Authors: Louis Braiotta Jr.

4th Edition

0470226420, 978-0470226421

More Books

Students also viewed these Accounting questions

Question

a valuing of personal and psychological privacy;

Answered: 1 week ago