Question
On November 1, 2003, a U.S. company sold merchandise to a Norwegian company for 1,400,000 krone. The receivable was denominated in krone. On the transaction
On November 1, 2003, a U.S. company sold merchandise to a Norwegian company for 1,400,000 krone. The receivable was denominated in krone. On the transaction date, the spot rate for krone was 1 krone = $.14. To protect itself against a strengthening of the krone, the U.S. firm entered into a forward exchange contract to sell 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: Spot Rate Forward Exchange ($1 krone) Rate ($/1 krone) December 31, 2003 $.135 $.137 $.133 (30-day) January 30, 2004 a) Record all journal entries (show all computations) on the books of the U.S. Co. on 11/01/03, 12/31/03 (balance sheet date) and 1/30/04. b) What is U.S. Co.'s overall gain or loss from these transactions? Show computations
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