Question
On December 1, 2014, Tuscano Corp. entered into a transaction to import raw materials from a foreign company. The account is to be settled on
On December 1, 2014, Tuscano Corp. entered into a transaction to import raw materials from a foreign company. The account is to be settled on February 1 with the payment of 60,000 foreign currency units (FCU). On December 1, Tuscano also entered into a forward contract to hedge the exposed position resulting from the import transaction. The forward rate is $.71 per unit of foreign currency. Tuscano Corp. has a December 31 fiscal year-end. Spot rates and the forward rates on relevant dates were:
Spot Rate per Unit Forward Rate Date of Foreign Currency (Feb. 1 Settlement) December 1 $.69 $.71 December 31 .72 .715 February 1 .73 .73 Required: Use the data given to select the best answer to each question.
1. The forward contract entered into on December 1 is an example of
(a) A hedge of an exposed receivable position.
(b) A hedge of a foreign currency commitment.
(c) A contract entered into for speculation.
(d) A hedge of an exposed payable position.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started