Foreign exchange contract : It is the contract between the parties which agrees to transfer the amount of foreign exchange at a predetermined rate of exchange on predetermined date. Forward contract: It is the contract between the purchase and the seller where they agreed to buy or sell an asset at a fixed price in the future on a specific date. To choose: The correct option.

Question

Want to see the full answer?

Answer 1

Question

Chapter 11, Problem 11.19.4E

To determine

Foreign exchange contract: It is the contract between the parties which agrees to transfer the amount of foreign exchange at a predetermined rate of exchange on predetermined date.

Forward contract: It is the contract between the purchase and the seller where they agreed to buy or sell an asset at a fixed price in the future on a specific date.

To choose: The correct option.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

[The following information applies to the questions displayed below.] Select the correct answer for each of the following questions. Note: Items 3 through 5 are based on the following: On December 12, 20X5, Dahl Company entered into three forward exchange contracts, each to purchase 100,000 francs in 90 days. The relevant exchange rates are as follows: Spot Rate Forward Rate for March 12, 20X6 December 12, 20X5 $ 0.88 $ 0.90 December 31, 20X5 0.98 0.93 2. On September 1, 20X5, Johnson Incorporated entered into a foreign exchange contract for speculative purposes by purchasing €50,000 for delivery in 60 days. The rates to exchange U.S. dollars for euros follow: 9/1/X5 9/30/X5 Spot rates $ 0.75 $ 0.70 30-day forward rate 0.73 0.72 60-day forward rate 0.74 0.73 In its September 30, 20X5, income statement, what amount should Johnson report as foreign exchange loss? multiple choice $2,500 $500 $1,500 $1,000

On November 1, 20X5, Davis signed a contract to purchase equipment from a foreign company for 200,000 francs. The equipment was delivered to Davis on December 1 with payment due in 90 days on March 1, 20X6. On November 1, 20X5, Davis Company entered into a 120-day forward contract to purchase 200,000 francs. The forward contract was designated as a fair value hedge of a firm commitment. The relevant exchange rates are as follows: Date November 1, 20X5 December 1, 20X5 December 31, 20X5 March 1, 20X6 Spot Rate O $3,000 loss O $2,000 loss O $4,000 gain O $1,000 gain $0.85 $0.90 $0.93 $0.99 Forward Rate (to March 1, 20X6) $0.88 $0.92 $0.97 What amount of foreign currency transaction gain or loss would Davis report on its income statement for year 20X5? OC

On December 12, year 11, Imp Co. entered into three forward exchange contracts, each to purchase 100,000 LCU's in 90 days. The relevant exchange rates are as follows:Spot rate Forward rate(for March 12, year 12)December 12, year 11 $0.88 $0.90December 31, year 11 $0.98 $0.93Imp entered into the second forward contract to hedge a commitment to purchase equipment being manufactured to Imp specifications. At December 31, 2022, what amount of foreign currency transaction gain should Imp include in income from this forward contract?a. $0b. $3,000c. $5,000d. $10,000