$1.37 per euro, and Quality delivers the merchandise, collecting 400,000 euros. What amount will Quality recognize in Sales from these transactions? a.0 b.400,000 c.544000 d.54
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- Boisjoly Watch Imports has agreed to purchase 15,000 Swiss watches for 1 million francs at today’s spot rate. The firm’s financial manager, James Desreumaux, has noted the following current spot and forward rates: On the same day, Desreumaux agrees to purchase 15,000 more watches in 3 months at the same price of 1 million Swiss francs. What is the cost of the watches in U.S. dollars, if purchased at today’s spot rate? What is the cost in dollars of the second 15,000 batch if payment is made in 90 days and the spot rate at that time equals today’s 90-day forward rate? If the exchange rate for is 0.50 Swiss francs per dollar in 90 days, how much will Desreumaux have to pay (in dollars) for the watches?A U.S. firm exports products to a German firm and will receive payment of €200,000 in three months. On June 1, the spot rate of the euro was $1.12, and the 3-month forward rate was $1.10. On June 1, the firm negotiated a forward contract with a bank to sell €200,000 forward in three months. The spot rate of the euro on September 1 is $1.15. the firm will receive $_______ for the euros. 224,000 230,000 220,000 200,000On March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a supplier in Norway in three months. On March 1, when the spot rate is $0.33 per Norwegian krone, Derby enters into a forward contract to purchase 635,000 Norwegian kroner at a three-month forward rate of $0.360. Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight-line basis. At the end of three months, when the spot rate is $0.351 per Norwegian krone, Derby orders and receives the merchandise, paying 635,000 kroner. The merchandise is sold within 30 days. What amount(s) does Derby report in net income as a result of this cash flow hedge of a forecasted transaction and the related purchase and sale of merchandise? Multiple Choice Cost of goods sold of $222,885 plus foreign exchange loss of $5,715 Cost of goods sold of $228,600 less foreign exchange gain of $19,050 Cost of goods sold of $209,550…
- On March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a supplier in Norway in three months. On March 1, when the spot rate is $0.45 per Norwegian krone, Derby enters into a forward contract to purchase 527,500 Norwegian kroner at a three-month forward rate of $0.490. Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight-line basis. At the end of three months, when the spot rate is $0.482 per Norwegian krone, Derby orders and receives the merchandise, paying 527,500 kroner. The merchandise is sold within 30 days. What amount(s) does Derby report in net income as a result of this cash flow hedge of a forecasted transaction and the related purchase and sale of merchandise? Cost of goods sold of $254,255 plus foreign exchange loss of $4,220 Cost of goods sold of $258,475 Cost of goods sold of $237,375 plus foreign exchange loss of $21,100 Cost of goods…Torres Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 106,000 pounds, with delivery and payment to be made on September 20. On July 20, Torres purchased a two-month call option on 106,000 pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction. The option has a strike price of $1.35 per pound and costs $1,060. The spot rate for pounds is $1.35 on June 20 and $1.40 on September 20. What amount will Torres Corporation report as an option expense in net income for the quarter ended September 30? Multiple Choice $530. $5,300. $2,300. $1,060.Torres Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 100,000 pounds, with delivery and payment to be made on September 20. On July 20, Torres purchased a two-month call option on 100,000 pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction. The option has a strike price of $1.25 per pound and costs $600. The spot rate for pounds is $1.25 on June 20 and $1.30 on September 20. What amount will Torres Corporation report as an option expense in net income for the quarter ended September 30?a. $300b. $600c. $2,000d. $5,000
- A merchant in the UK has agreed to sell goods to an importer in the USA at an invoice price of $130,000. Of this amount, $40,000 will be payable on shipment, $60,000 one month after shipmentand $30,000 three months after shipment.The quoted foreign exchange rates ($ per £) at the date of shipment are as follows:Spot rate (on shipment) 1.690 -1.692Forward rate-(one month after) 1.687 -1.690Forward rate-(three months after) 1.680 -1.684The merchant decides to enter forward exchange contracts through his bank to hedge these transactions for fear that the future spot rates may change to his disadvantage. i. State what are the presumed advantages of using forward exchange contracts. ii. Calculate the sterling amount that the merchant would receive on these contracts. iii. Comment on the wisdom of the merchant decision to hedge by comparing his total receipts inpound sterling, assuming the spot rate ($ per £) at the dates of receipt of first payment upon shipment remains the same but rates…On November 1, 2017, Bernard Company (a U.S.-based company) sold merchandise to a foreign customer for 100,000 FCUs with payment to be received on April 30, 2018. At the date of sale, Bernard entered into a six-month forward contract to sell 100,000 FCUs. The company properly designates the forward contract as a cash flow hedge of a foreign currency receivable. The following exchange rates apply:Bernard’s incremental borrowing rate is 12 percent. The present value factor for four months at an annual interest rate of 12 percent (1 percent per month) is 0.9610.a. Prepare all journal entries, including December 31 adjusting entries, to record the sale and forward contract.b. What is the impact on net income in 2017?c. What is the impact on net income in 2018?A US company knows it will have to pay 3 million euros in three months. The current exchange rate is 1.3500 dollars per euro. Discuss how forward and options contracts can be used by the company to hedge its exposure.
- Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2017, with payment of 16,000 korunas to be received on March 1, 2018. Brandlin enters into a forward contract on December 1, 2017, to sell 16,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows:Brandlin’s incremental borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent (1 percent per month) is 0.9803. Brandlin must close its books and prepare financial statements at December 31.a. Assuming that Brandlin designates the forward contract as a cash flow hedge of a foreign currency receivable and recognizes any premium or discount using the straight-line method, prepare journal entries for these transactions in U.S. dollars. What is the impact on 2017 net income? What is the impact on 2018 net income? What is the impact on net income over the two accounting periods?b. Assuming that Brandlin…Panthers Corp., a U.S. importer of wine, placed an order with an Italian supplier for 500,000 bottles of wine, at a price of Euro 15 per bottle. Relevant exchange rates are as follows: Date Spot Rate Forward Rate (to January 31, 2020) 1-Nov-19 $1.119 $1.125 31-Dec-19 1.122 1.130 31-Jan-20 1.115 1.115 Panthers has an incremental borrowing rate of 12 percent (1 percent per month) and prepares the financial statements on December 31. Required a)Assume the wine was received on November 1, 2019, and payment was made on January 31, 2020. There was no attempt to hedge the exposure to foreign exchange risk. Prepare the journal entries to account for this import purchase. b)Assume the wine was received on November 1, 2019, and payment was made on January 31, 2020. On November 1, Panthers entered into a three-month forward contract to purchase Euro 7.5 million. The forward contract is properly designated as a cash flow hedge of a foreign currency payable. Prepare the journal entries to account…Brexylite plc is due to pay €1,750,000 to its European suppliers in 3 months’ time. The financial manager has decided to hedge the currency risk of this account payable. The following information has been provided by the company’s bank: Spot rate (£ per €): 1·1410 ± 0·0022 3 months forward rate (£ per €): 1·1574 ± 0·0041 6 months forward rate (£ per €) 1.1582 ± 0.0032 Calculate the expected (£) Stirling payment if the 3 months forward market is used
