Question
Murray Foods has agreed to buy schnitzel makers from Germany. The total invoice amount is 1,000,000 to be paid in 6 months when the machines
Murray Foods has agreed to buy schnitzel makers from Germany. The total invoice amount is 1,000,000 to be paid in 6 months when the machines are delivered. CrownJet has agreed to sell a jet to a frog farmer in France. CrownJet is expecting to receive 1,000,000 in 6 months when the plane is delivered. Both companies are worried about the dollar/euro exchange rate. Murray and CrownJet enter into the forward contract expiring 6 months from now. The $/ spot exchange rate is 1.12. The forward rate is $1.10/. Murray Foods goes long. CrownJet goes short. The contract is cash settled.
It is the expiry date. The spot exchange rate is $/ 1.17. On the expiry date:
| CrownJet pays Murray 50,000 |
| Murray pays CrownJet 20,000 |
| CrownJet pays Murray $70,000 |
| Murray pays CrownJet $20,000 |
| Murray pays CrownJet $70,000 |
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Managing The Audit Function A Corporate Audit Department Procedures Guide
Authors: Michael P. Cangemi
2nd Edition
0471012556, 978-0471012559
