please solve with full working for all parts answer in text o image or handwritten answer Shandra Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 107,000 pounds,with delivery and payment to be made on June 15. On April 15, when the spot rate is $1.27 per pound, Shandra purchases atwo-month call option on 107,000 pounds and designates this option as a cash flow hedge of a forecasted foreign currencytransaction. The time value of the option is excluded in assessing hedge effectiveness; the change in time value isrecognized in net income over the life of the option. The option has a strike price of $1.27 per pound and costs $1,070. Thegoods are received and paid for on June 15. Shandra sells the imported goods in the local market immediately. The spotrate for pounds is $1.320 on June 15.Required:a-1. Prepare all journal entries for Shandra Corporation related to this transaction and hedge.a-2. What amount should Shandra Corporation report in net income as cost of goods sold for the quarter ending June 30?b. What amount should Shandra Corporation report in net income as foreign exchange gain or loss for the quarter endingJune 30?

DateParticularsDebitCreditApril 15Foreign Currency Option Premium Expense$1,070Cash$1,070June…

Answered: Shandra Corporation (a U.S-based…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 26QA

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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
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? Choose the correct.a. $300b. $600c. $2,000d. $5,000
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On January 11, the spot exchange rate for the U.S. dollar is $0.70 per Canadian dollar. In one year’s time, the Canadian dollar is expected to appreciate by 20 percent or depreciate by 15 percent. We have a European put option on U.S. dollars expiring in one year, with an exercise price of 1.39 CND$/US$, that is currently selling for a price of $2.93. Each put option gives the holder the right to sell 10,000 U.S. dollars. The current one-year Canadian Treasury Bill rate is 2 percent, while the one-year U.S. Treasury Bill rate is 3 percent, both compounded annually. Treat the Canadian dollar as the domestic currency. c. Calculate the estimated value of this put option for Canadian T-Bill rates of 0%, 1%, 2%, 4%, 5%, and 6%. Plot these values in a graph (by hand or using Excel), with put option values on the y-axis and Canadian T-bill rates on the x-axis. What can we conclude about the relationship between domestic interest rates and foreign currency put option values? xxxx
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