Question
Lucky Lucas, a French chain of western-style restaurants, has received a shipment of Argentinian beef worth ARP 100,000 to be paid in 90 days. The
Lucky Lucas, a French chain of western-style restaurants, has received a shipment of Argentinian beef worth ARP 100,000 to be paid in 90 days. The invoice must be translated into FRF. The spot rate is FRF/ARP 4.2, and the forward rate is FRF/ARP 4.1.
(a)Using the spot rate, how would you record the invoice at time t? What is the accounting entry at time T if the spot rate at T equals 4.25?
(b)Using the forward rate, how would you record the invoice at time t? What is the accounting entry at time T if the spot rate equals 4.25?
(c)Are the profits and cash flows affected by the way in which the recording is made?
(d)Which method is more economically correct, ex ante? Why?
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