Problem 6 - 25 points

On January 1, 2019, Gutt Company expects to purchase 100,000 kilos of tobacco from a supplier on January 31, 2020 at the prevailing market price on such date.

Recent market factors indicate that the market price of tobacco per kilo is within the vicinity of P150.

To protect itself from the variability of the market price of tobacco, Gutt companyentered into forward contract with a speculator bank under the following condition:

1.If the market price is more than P150, the excess is paid by the bank to Gutt Company.

2.If the market price is less than P150 the deficiency is paid by Gutt Company to the bank