Question 1Valley Harps Ltd, a Trinidad & Tobago based company, annually negotiates a contract with SwissWatch Company, located in Switzerland, to purchase a large shipment of watches. On July 17, 2015,Valley Harps Ltd purchased 10,000 watches for a total of 1.25 million Swiss francs. However, ValleyHarps Ltd is not aware of the exchange rates for Swiss francs, but those of other currencies, includingthe US dollar.Selected exchange rates are given as follows:July 25, 2020TTD 6.75/USDUSD 0.77/CHFJuly 17, 2015TTD 6.55/USDUSD 0.73/CHFYou are ask to assist Valley Harps Ltd in determining the following:a) The total cost and cost per watch in Trinidad & Tobago dollars.b) The total cost and cost per watch in Trinidad & Tobago dollars of 12,000 watches purchased onJuly 25, 2020, assuming that Switch Watch Company maintained the same price per watch (inSwiss francs).

Solution: Cross exchange rates If the direct exchange rate between two currency is unknown and both…

Answered: Valley Harps Ltd, a Trinidad & Tobago…

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter13: Marketable Securities And Derivatives

Section: Chapter Questions

Problem 22E

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EXCHANGE RATES Table 17.1 lists foreign exchange rates for August 30, 2018. On that day, how many dollars would be required to purchase 1,000 units of each of the following: British pounds, Canadian dollars, EMU euros, Japanese yen, Mexican pesos, and Swedish kronas?
On December 20, 2015, Butanta Company (a U.S. company headquartered in Miami, Florida) sold parts to a foreign company at a price of 50,000 ostras. Payment received on January 10, 2016, Currency exchange rates for 1 ostra are as follows: December 20, 2015 $1.05, December 31, 2015 $1.02 and January 10, 2016 $0.98. How does the fluctuation in exchange rates affect Butanta's 2015 income statement? How does the fluctuation in exchange rates affect Butanta's 2016 income statement?
Use the following information for Problems 11 and 12.MNC Corp. (a U.S.-based company) sold parts to a South Korean customer on December 1, 2017, with payment of 10 million South Korean won to be received on March 31, 2018. The following exchange rates apply:MNC’s incremental borrowing rate is 12 percent. The present value factor for three months at an annual interest rate of 12 percent (1 percent per month) is 0.9706.Assuming that MNC entered into a forward contract to sell 10 million South Korean won on December 1, 2017, as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2017 resulting from a fluctuation in the value of the won?a. No impact on net income.b. $58.80 decrease in net income.c. $2,000 decrease in net income.d. $1,941.20 increase in net income.
Use the following information for Problems 11 and 12.MNC Corp. (a U.S.-based company) sold parts to a South Korean customer on December 1, 2017, with payment of 10 million South Korean won to be received on March 31, 2018. The following exchange rates apply:MNC’s incremental borrowing rate is 12 percent. The present value factor for three months at an annual interest rate of 12 percent (1 percent per month) is 0.9706.Assuming that MNC did not enter into a forward contract, how much foreign exchange gain or loss should it report on its 2017 income statement with regard to this transaction?a. $5,000 gainb. $3,000 gainc. $2,000 lossd. $1,000 loss
Xios trades regularly with customers worldwide. Its home currency is the dollar. The company is expecting to receive €1.6 million in 6 months’ time from an aboad customer.Current exchange rates in the home country of Xios are: Exchange rate Euro Per dollarSpot 0.9431-0.94566-month forward 0.9360- 0.939412-month forward 0.9368-0.9406 a) If the current spot rate at the end of 6 months is 1 dollar = Euros 0.9325-0.9400, comment on Xios's hedging decision. b) Discuss whether Xios should avoid exchange rate risk by invoicing abroad customers in dollars.
QUESTION # 1North Bank has been borrowing in the U.S. markets and lending abroad, thus incurring foreign exchange risk. In a recent transaction, it issued a one-year $2 million CD at 6 percent and funded a loan in euros at 8 percent. The spot rate for the euro was €1.45/$ at the time of the transaction (US being the home country).Information received immediately after the transaction closing indicated that the euro will depreciate to €1.47/$ by year-end. If the information is correct, what will be the realized spread on the loan? What should have been the bank interest rate on the loan to maintain the 2 percent spread? Assume adjustments in principal value are included in the spread.The bank had an opportunity to sell one-year forward marks at €1.46. What would have been the spread on the loan if the bank had hedged forward its foreign exchange exposure?What is interest rate parity theory and calculate that at what forward exchange rate of dollars per euro, an investor in USA would…
On December 20, 2017, Butanta Company (a U.S. company headquartered in Miami, Florida) sold parts to a foreign customer at a price of 50,000 ostras. Payment is received on January 10, 2018. Currency exchange rates for 1 ostra are as follows: December 20, 2017 $1.05December 31, 2017 1.02January 10, 2018 0.98a. How does the fluctuation in exchange rates affect Butanta’s 2017 income statement?b. How does the fluctuation in exchange rates affect Butanta’s 2018 income statement?
Required information Skip to question On December 5, 20X8, Texas based Imperial Corporation purchased goods from a Saudi Arabian firm for 100,000 riyals (SAR), to be paid on January 10, 20X9. The transaction is denominated in Saudi riyals. Imperial's fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange rates are: December 5, 20X8 1 riyal = $ 0.265 December 31, 20X8 1 riyal = 0.262 January 10, 20X9 1 riyal = 0.264 Based on the preceding information, what journal entry would Imperial make on December 31, 20X8, to revalue foreign currency payable to equivalent U.S. dollar value? A. Accounts Payable (SAR) 300 Foreign Currency Transaction Gain 300B. Accounts Payable (SAR) 100 Foreign Currency Transaction Gain 100 C. Foreign Currency Transaction Loss 300 Accounts Payable (SAR) 300 D. Foreign Currency Transaction Loss 200 Accounts Payable (SAR) 200
On December 20, 2017, Butanta Company (a U.S. company headquartered in Miami, Florida) sold parts to a foreign customer at a price of 50,000 ostras. Payment is received on January 10, 2018. Currency exchange rates for 1 ostra are as follows:a. How does the fluctuation in exchange rates affect Butanta’s 2017 income statement?b. How does the fluctuation in exchange rates affect Butanta’s 2018 income statement?
QUESTION # 1 North Bank has been borrowing in the U.S. markets and lending abroad, thus incurring foreign exchange risk. In a recent transaction, it issued a one-year $2 million CD at 6 percent and funded a loan in euros at 8 percent. The spot rate for the euro was €1.45/$ at the time of the transaction (US being the home country). Information received immediately after the transaction closing indicated that the euro will depreciate to €1.47/$ by year-end. If the information is correct, what will be the realized spread on the loan? What should have been the bank interest rate on the loan to maintain the 2 percent spread? Assume adjustments in principal value are included in the spread. The bank had an opportunity to sell one-year forward marks at €1.46. What would have been the spread on the loan if the bank had hedged forward its foreign exchange exposure? What is interest rate parity theory and calculate that at what forward exchange rate of dollars per euro, an investor in USA…
Galina Works trades regularly with customers in different countries. Its home currency is the dollar. The company expects to receive 1.6 million euros in six months’ time from a foreign customer. Current exchange rates in the home country of Galina Works are as follows: Exchange rate Euro Per dollar Spot 0.9431-0.9456 6-month forward 0.9360- 0.9394 12-month forward 0.9368-0.9406 Required: a) Calculate the rate of forward premium of the euro on the 12-month forward exchange rate both for buying and selling rates. b) Assuming that a forward contract is the only hedging tool available in the home country of Galina Works, calculate the dollar receipts of the 1.6 million euros receivable from the foreign customer under a hedge condition. c) If the current spot rate at the end of 6 months is 1 dollar = Euros 0.9325-0.9400, comment on Galina Works hedging decision. d) Discuss whether Galina Works should avoid exchange rate risk by invoicing foreign customers in dollars. e) Explain to…
Galina Works trades regularly with customers in different countries. Its home currency is the dollar. The company expects to receive 1.6 million euros in six months’ time from a foreign customer.Current exchange rates in the home country of Galina Works are as follows: Exchange rate Euro Per dollarSpot 0.9431-0.94566-month forward 0.9360- 0.939412-month forward 0.9368-0.9406 Required:a) Calculate the rate of forward premium of the euro on the 12-month forward exchange rate both for buying and selling rates. b) Assuming that a forward contract is the only hedging tool available in the home country of Galina Works, calculate the dollar receipts of the 1.6 million euros receivable from the foreign customer under a hedge condition. c) If the current spot rate at the end of 6 months is 1 dollar = Euros 0.9325-0.9400, comment on Galina Works hedging decision.

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