Question
On October 5 th , Excelsior Corporation, a U.S. company, placed an order for 20,000 units from Shanghai, Inc. in China. The cost of the
On October 5 th , Excelsior Corporation, a U.S. company, placed an order for 20,000 units from Shanghai, Inc. in China. The cost of the order was 2,000,000 yuan when the spot rate was $.015 . To minimize the exchange rate risk, Excelsior entered into a forward contract to purchase 2,000,000 yuan at a rate of .018. This forward contract meets the criteria to be designated as a fair value hedge. On November 15 ^ (th) Excelsior received the 20,000 units. At that time, the spot rate was $.020. On December 10 th Excelsior paid Shanghai 2,000,000 yuan, when the spot rate was $.017, What amount will Excelsior recognize as a net gain/ loss with respect to this transaction ?
Select one:
a. $6,000 gain
b. There is no gain or loss because the forward contract serves as a hedge against this transaction.
c. $4,000 gain
d. $6,000 loss
e. $4,000 loss
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