Part 1

You are the newly hired Controller of Astros Ltd.On the first day, the Executive Vice-President (EVP) of Finance of this family-owned business, asked you about a US$750,000 payment due in the next sixty (60) days.He claimed he has heard about the idea of a foreign currency forward contract and would like you to explain to him this type of contract.

Instruction

Prepare a short memo, succinctly explain to the EVP the purpose and nature of entering into a forward contract of foreign exchange. (2 marks)

Part 2

In an independent scenario:On August 25, 2020, White Sox Inc. entered into a forward contract to buy 50,000 Krubles (KRB) for $ 4,500 Canadian (CAD), to be delivered September 15, 2020.On August 31, 2020, 50,000 KRB can be purchased for $5,000 (CAD). On September 15, White Sox settles the contract and takes delivery of the 25,000 KRB for $5,750 (CAD).

Instruction

a)Prepare any entry necessary to record entering to this forward contract. (2 marks)

b)Prepare the entry to record the change in the value of the contract on August 31, 202. (2 marks)

c)Prepare the entry to record the settlement of the contract on the settlement day.(4 marks)