Forward Contracts - Lecture notes 1 PDF

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(Forward Contracts – Hedging an Exposed Liability)OCDC Enterprise purchases inventory from a foreign supplier on September 1, 2016 with payment due on December 31, 2016. The transaction will be settled in 1,000,000 foreign currency units (FCUs). Management of OCDC immediately enters into a forward c...

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(Forward Contracts – Hedging an Exposed Liability) OCDC Enterprise purchases inventory from a foreign supplier on September 1, 2016 with payment due on December 31, 2016. The transaction will be settled in 1,000,000 foreign currency units (FCUs). Management of OCDC immediately enters into a forward contract to hedge this transaction. The relevant exchange rates and forward contract fair values are as follows: Date Spot Rate Nov. 1 Forward Rate Forward Contract Fair Value Sept 1 P1.120 P1.124 P0 Nov. 1 1.129 1.128 4,000 Dec. 31 1.140 1.140 16,000 1.

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What is the amount of exchange gain or (loss) recognized with respect to the accounts payable account on November 1, 2016? a. (4,000) c. 4,000 b. 9,000 d. (9,000) What is the amount of exchange gain or (loss) recognized with respect to Forward Contract on November 1, 2016? a. (4,000) c. 4,000 b. 9,000 d. (9,000) What is the amount of exchange gain or (loss) recognized with respect to Forward Contract on December 31, 2016? a. 4,000 c. 12,000 b. 9,000 d. 18,000 How much is the net gain or (loss) on November 1, 2016? a. 1,000 c. 5,000 b. (5,000) d. (1,000) How much is the net gain or loss on December 31, 2016? a. 1,000 c. 5,000 b. (5,000) d. (1,000) How much is the outstanding accounts payable as of November 1, 2016? a. 1,120,000 c. 1,128,000 b. 1,124,000 d. 1,129,000 How much is the outstanding peso-payable as of November 1, 2016? a. 1,120,000 c. 1,128,000 b. 1,124,000 d. 1,129,000 How much is the outstanding FC-receivable as of November 1, 2016? a. 1,120,000 c. 1,128,000 b. 1,124,000 d. 1,129,000

(Forward Contract – Hedging an Exposed Asset) On November 1, 20x6, APIC Corporation sold merchandise to Allan Corporation on November 1, 20x6 for U.S. $50,000. Payment will be received on February 1, 20x7. APIC Corporation entered into forward exchange contracts to hedge the transaction on November 1, 20x6. The fiscal year-end for APIC Corporation is December 31. The exchange rates on various dates are as follows: November 1, 20x6 December 31, 20x6 February 1, 20x7 Spot rate P40.00 P40.25 P40.50 30-day forward rate 40.10 40.35 40.55 60-day forward rate 40,20 40.40 40.65 90-day forward rate 40.30 40.45 40.60 1.

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How much is a. 2,500 b. 12,500 How much is a. 2,500 b. 12,500 How much is a. 2,500 b. (2,500) How much is a. 2,500 b. (2,500) How much is a. 5,000

the ForEx gain or (loss) on December 31, 20x6 with respect to accounts receivable? c. (2,500) d. (12,500) the ForEx gain or (loss) on December 31, 20x6 with respect to forward contract? c. (2,500) d. (12,500) the forward contract fair value as of December 31, 20x6? c. (7,500) d. (10,000) the forward contract fair value as of February 1, 20x7? c. (7,500) d. (10,000) the net ForEx gain or (loss) on February 1, 20x7? c. 7,500

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b. (5,000) d. (7,500) How much is the outstanding accounts receivable as of December 31, 20x6? a. 2,012,500 c. 2,015,000 b. 2,017,500 d. 2,025,000 How much is the outstanding peso-receivable as of December 31, 20x6? a. 2,012,500 c. 2,017,500 b. 2,015,000 d. 2,025,000 How much is the Outstanding FC-payable as of December 31, 20x6? a. 2,012,500 c. 2,017,500 b. 2,015,000 d. 2,025,000...