Question
Jackson Auto Parts Manufacturer, a U.S. based manufacturer of piston rings and other auto parts sold parts to a South Korean Auto Manufacturer on December
Jackson Auto Parts Manufacturer, a U.S. based manufacturer of piston rings and other auto parts sold parts to a South Korean Auto Manufacturer on December 1, 2020 with payment in 10 million South Korean Won to be received on March 31, 2021. The following exchange rates are relevant:
Date: Spot Rate Forward Rate
Dec 1, 2020 $0.0035 $0.0034
Dec 31, 2020 $0.0033 $0.0032
March 31 2021 $0.0038 $0.0032
Assuming Jackson did not hedge its foreign exchange risk, how much foreign exchange gain or loss should it report on its fiscal year end December 31, 2020 financial statements/
Assuming that Jackson did in fact decide to hedge its foreign exchange risk and entered into a forward exchange contract to sell 10 million South Korean Won on December 1, 2020 as a fair value hedge of a foreign currency receivable, what is the net impact on Jacksons 2020 net income resulting from a fluctuation in the value of the Won? Ignore time value of money.
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