Question
RXN's year-end is on December 31. On November 1, 2019 when the U.S. dollar was worth CDN$1.365, RXN sold merchandise to an American client for
RXN's year-end is on December 31. On November 1, 2019 when the U.S. dollar was worth CDN$1.365, RXN sold merchandise to an American client for US$300,000. Full payment of this invoice was expected by March 1, 2020. On December 1, the spot rate was CDN$1.3450, and the three-month forward rate was CDN$1.3250. In order to minimize its Foreign Exchange risk and exposure, RXN entered into a forward contract with its bank on December 1, 2019 to deliver US$300,000 in three months' time. The spot rate at year-end was CDN$1.36 and the forward rate from December 31, 2019 to March 1, 2020 was CDN$1.34. On March 1, 2020, RXN received the US$300,000 from its client and settled its contract with the bank. The forward contract was to be accounted for as a fair value hedge of the US dollar receivable. Significant dates and exchange rates pertaining to this transaction are as follows: Spot Rates Forward Rates* November 1, 2019 (Transaction date) US$1 = CDN$1.365 December 1, 2019 (Hedged date) US$1 = CDN$1.3450 US$1 = CDN$1.3250 December 31, 2019 (Year-end) CDN$1.36 CDN$1.34 March 1, 2020 (Settlement date) US$1 = CDN$1.368. US$1 = CDN$1.368. *for contracts expiring on March 1, 2020 What is the amount of the discount on the forward contract? Select one: A. CDN$1,000 B. CDN$1,500 C. CDN$6,000 D. CDN$3,000
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