Question
On July 1, 2019, Powder Inc., based in British Columbia, ordered merchandise from an American supplier for US$600,000. Delivery was scheduled for the month of
On July 1, 2019, Powder Inc., based in British Columbia, ordered merchandise from an American supplier for US$600,000. Delivery was scheduled for the month of October, with payment to be made in full on November 15, 2019. Once the order was placed, Powder entered into a forward contract with its bank to purchase US$600,000 on November 15, 2019 at the forward rate of CDN$1.3625. The forward contract was designated as a cash flow hedge of the cash flow required to settle with the American supplier. The merchandise was received on October 1, 2019 and Powder purchased the U.S. dollars needed to pay its supplier on November 15, 2019. A summary of the significant dates and exchange rates pertaining to this transaction are as follows:
Date | Spot Rates | Forward Rates - for contracts expiring on November 15, 2019 |
July 1, 2019 | US$1 = CDN$1.3445 | US$1 = CDN$1.3625 |
October 1, 2019 | US$1 = CDN$1.3575 | US$1 = CDN$1.365 |
October 31, 2019 | US$1 = CDN$1.369 | US$1 = CDN$1.37 |
November 15, 2019 | US$1 = CDN$1.3725 | US$1 = CDN$1.3725 |
What amount (in Canadian dollars) did Powder pay to its American supplier for the purchase of the inventory?
Group of answer choices
$823,500
$806,700
$817,500
$821,400
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