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On November 1, 2003, a U.S. company purchased merchandise from a Norwegian company for 1,400,000 krone.The payable was denominated in krone.On the transaction date, the
On November 1, 2003, a U.S. company purchased merchandise from a Norwegian company for 1,400,000 krone.The payable was denominated in krone.On the transaction date, the spot rate for krone was 1 krone = $.14.To protect itself against a weakening of the krone, the U.S. firm entered into a forward exchange contract to buy 1,400,000 krone on January 30, 2004, the settlement date for the sale.The 90-day forward exchange rate specified in the contract was 1 krone = $.139.Exchange rates on December 31, 2003 and January 30, 2004 were as follows:
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