On November 1, 2020, Ocean Grove, Inc., a U.S. company, purchased from Monterrey Corporation, a Mexican company, some machinery that cost 1,000,000 pesos (the machinery was delivered on November 1, so this is the "existing payable" scenario). The invoice was payable in pesos on February 1, 2021. To hedge against any potential change in the exchange rate, Ocean Grove entered into a forward contract on November 1, 2020 with Bradley Beach Trader. a US brokerage and investment firm. The contract specified that Ocean Grove would buy 1,000,000 pesos from Bradley Beach for settlement on February 1, 2021. Assume the company uses the gross method. Relevant exchange rates are below: 11/1/20 12/31/20 2/1/21 Spot $0.042 $0.043 $0.040 rate Forward rate for 2/1/21 $0.045 $0.047 When Ocean Grove records the forward contract with Brady Beach Trader on November 1, which side will be denominated in pesos, and for how much?

On November 1, 2020, Ocean Grove, Inc., a U.S. company, purchased from Monterrey Corporation, a Mexican company, some machinery that cost 1,000,000 pesos (the machinery was delivered on November 1, so this is the "existing payable" scenario). The invoice was payable in pesos on February 1, 2021. To hedge against any potential change in the exchange rate, Ocean Grove entered into a forward contract on November 1, 2020 with Bradley Beach Trader. a US brokerage and investment firm. The contract specified that Ocean Grove would buy 1,000,000 pesos from Bradley Beach for settlement on February 1, 2021. Assume the company uses the gross method. Relevant exchange rates are below: 11/1/20 12/31/20 2/1/21 Spot $0.042 $0.043 $0.040 rate Forward rate for 2/1/21 $0.045 $0.047 When Ocean Grove records the forward contract with Brady Beach Trader on November 1, which side will be denominated in pesos, and for how much?

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter13: Marketable Securities And Derivatives

Section: Chapter Questions

Problem 21E

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