Duck Corporation "forecasted" on December 21, 2020 to sell a machine to a company in Italy. The selling price was 500,000 euros, to be paid on March 21, 2021. To hedge against fluctuations in the exchange rate, Duck entered into a forward contract on Dec. 21, 2020 to sell 500,000 euros on March 21, 2021, the agreed date of machine delivery, for $1.227 per euro. The company ends its fiscal year on December 31. The following exchange rates were quoted: Forward Rate Date Spot Rate (Delivery on 3/21/2020) 12/21/2020 1.228 1.227 12/31/2020 1.222 1.221 3/21/2021 1.225 Required: A. Prepare all journal entries relative to the above event on December 21, 2020. B. Prepare all journal entries relative to the above event on December 31, 2020. C. Prepare all journal entries relative to the above event on March 21, 2021.
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- Based on past experience, Maas Corp. (a U.S.-based company) expects to purchase raw materials from a foreign supplier at a cost of 2,000,000 francs on March 15, 2021. To hedge this forecasted transaction, on December 15, 2020, the company acquires a call option to purchase 2,000,000 francs in three months. Maas selects a strike price of $0.79 per franc when the spot rate is $0.79 and pays a premium of $0.003 per franc. The spot rate increases to $0.794 at December 31, 2020, causing the fair value of the option to increase to $13,000. By March 15, 2021, when the raw materials are purchased, the spot rate has climbed to $0.81, resulting in a fair value for the option of $40,000. The raw materials are used in assembling finished products, which are sold by December 31, 2021, when Maas prepares its annual financial statements. Prepare all journal entries for the option hedge of a forecasted transaction and for the purchase of raw materials.Based on past experience, Maas Corp. (a U.S.-based company) expects to purchase raw materials from a foreign supplier at a cost of 1,200,000 francs on March 15, 2021. To hedge this forecasted transaction, on December 15, 2020, the company acquires a call option to purchase 1,200,000 francs in three months. Maas selects a strike price of $0.68 per franc when the spot rate is $0.68 and pays a premium of $0.005 per franc. The spot rate increases to $0.686 at December 31, 2020, causing the fair value of the option to increase to $10,000. By March 15, 2021, when the raw materials are purchased, the spot rate has climbed to $0.70, resulting in a fair value for the option of $24,000. The raw materials are used in assembling finished products, which are sold by December 31, 2021, when Maas prepares its annual financial statements. Prepare all journal entries for the option hedge of a forecasted transaction and for the purchase of raw materials. What is the overall impact on net income over…Pink has just sold equipment to Black. Pink is a US company who has USD accounting. Sale date is March 2020 and payment date is September 2020. Deal amount €2 000 000 Spot March = $1.20/€ 6-month forward contract = $1.14€ Spot September forecast = $1.16/€ Eurozone 6-month borrowing rate = 2.0%/year If Pink hedges 50% of the exposure with forward contracts, then foreign exchange gains/(losses) are _________
- On November 1, 2020, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 100,000 yuan. Cheng expects to receive the goods on April 30, 2021, and make immediate payment. On November 1, 2020, Cheng enters into a six-month forward contract to buy 100,000 yuan. The company properly designates the forward contract as a cash flow hedge of a forecasted foreign currency transaction. Forward points are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis over the life of the contract. The following U.S. dollar–Yuan exchange rates apply: Date Spot Rate Forward Rate(to April 30, 2021) November 1, 2020 $ 0.21 $ 0.195 December 31, 2020 0.19 0.170 April 30, 2021 0.18 N/A As expected, Cheng receives goods from the foreign supplier on April 30, 2021, and pays 100,000 yuan immediately. Cheng sells the imported goods in the local market in May 2021.…On November 1, 2020, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 130,000 yuan. Cheng expects to receive the goods on April 30, 2021, and make immediate payment. On November 1, 2020, Cheng enters into a six-month forward contract to buy 130,000 yuan. The company properly designates the forward contract as a cash flow hedge of a forecasted foreign currency transaction. Forward points are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis over the life of the contract. The following U.S. dollar–Yuan exchange rates apply: Date Spot Rate Forward Rate (to April 30, 2021) November 1, 2020 $ 0.24 $ 0.225 December 31, 2020 0.23 0.200 April 30, 2021 0.21 N/A As expected, Cheng receives goods from the foreign supplier on April 30, 2021, and pays 130,000 yuan immediately. Cheng sells the imported goods in the local market in May 2021. Prepare all journal entries, including…On 1 November 2022, Long Ltd enters a contract to buy inventory from an overseas supplier, with the inventory to be delivered in six months' time. A sum of US$1 000000 is payable on delivery of the inventory. Long Ltd does not want to be exposed to potential losses associated with changes in the exchange rate. As a result, Long Ltd takes out a forward rate contract with Board Bank to purchase US$1 000000 in six months' time at an exchange rate of A$1.00 = US$0.70. REQUIRED Explain who now bears the risks associated with changes in the exchange rate, and calculate how much Long Ltd will ultimately pay for the invento
- On December 12, 2022, Tin Company entered into a forward exchange contract to purchase 500,000 euros in 90 days.The relevant exchange rates are as follows: Spot rate Forward rate (for 3/12/2023)November 30, 2022 P0.56 P0.57December 12, 2022 P0.57 P0.58December 31, 2022 P0.61 P0.60March 12, 2023 P0.62 P0.62 The purpose of this forward contract is to hedge a purchase of inventory in November 30, 2022, payable in March 2023. How much is the net forex gain/loss December 31, 2022? (just encode the absolute amount)Maloney Corporation has decided to speculate on the foreign exchange market, and has entered into a 6-month forward contract to sell 250,000 Mexican pesos. When the forward contract was acquired on October 1, 2012, the spot rate for the peso was $0.1601 and the 6-month future was $0.1639. On December 31, 2012, the spot rate was $0.1616 and the future rate was $0.1607. On April 1, 2013, the spot rate was $0.1650. Spot Rate Forward Rate 10/1/12 0.1601 0.1639 12/31/12 0.1616 0.1607 4/1/13 0.1650 Prepare the necessary journal entries to record the forward contract Journal…On January 10, Volkswagen agrees to import auto parts worth $7 million from the U.S. The parts will be delivered on March 4 and are payable immediately in dollars. VW decides to hedge its dollar position by entering into IMM futures contracts. The spot rate is $1.3447/€ and the March futures price is $1.3502. On March 4, the spot rate turns out to be $1.3452/€, while the March futures price is $1.3468/€. Calculate VW’s net euro gain or loss on its futures position. $13,850 loss $13,850 gain $17,850 loss $17,850 gain
- A U.S. Company knows that it will have to pay 3 million Euros in three months. The currentexchange rate is 1.4500 USD per euro. Discuss how forward and options contracts can beused by the company to hedge its exposureOn November 1, 2017, Dos Santos Company forecasts the purchase of raw materials from a Brazilian supplier on February 1, 2018, at a price of 200,000 Brazilian reals. On November 1, 2017, Dos Santos pays $1,500 for a three-month call option on 200,000 reals with a strike price of $0.40 per real. Dos Santos properly designates the option as a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2017, the option has a fair value of $1,100. The following spot exchange rates apply: Date U.S. Dollar per Brazilian real November 1, 2017 $0.40 December 31, 2017 0.38 February 1, 2018 0.41 What is the net impact on Dos Santos Company’s 2018 net income as a result of this hedge of a forecasted foreign currency transaction? Assume that the raw materials are consumed and become a part of the cost of goods sold in 2018. Choose the correct.a. $80,000 decrease in net income.b. $80,600 decrease in net income.c. $81,100 decrease in net income.d. $83,100 decrease in…On November 1, 2017, Dos Santos Company forecasts the purchase of raw materials from a Brazilian supplier on February 1, 2018, at a price of 200,000 Brazilian reals. On November 1, 2017, Dos Santos pays $1,500 for a three-month call option on 200,000 reals with a strike price of $0.40 per real. Dos Santos properly designates the option as a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2017, the option has a fair value of $1,100. The following spot exchange rates apply: Date U.S. Dollar per Brazilian real November 1, 2017 $0.40 December 31, 2017 0.38 February 1, 2018 0.41 What is the net impact on Dos Santos Company’s 2017 net income as a result of this hedge of a forecasted foreign currency transaction? Choose the correct.a. $–0–.b. $400 decrease in net income.c. $1,000 decrease in net income.d. $1,400 decrease in net income.