PROBLEM 2

On September 1, 2017, CLARK Company purchased machine parts from LYNDON Company for 6,000,000 Hong Kong dollars to be paid on January 1, 2018. The exchange rate on September 1 is HK$7.7=P1. On the same date, CLARK enters into a forward contract and agrees to purchase HK$6,000,000 on January 1, 2018, at the rate of HK$7.7=P1. On December 31, 2017 and on January 1, 2018, the exchange rate is HK$8.0=P1.

1. What is the gain or loss on the forward contract on December 31, 2017?

2. What is the notional value of the HK$ forward contract?