Chapter 15, Problem 18QA

Jackson, a U.S. company, acquires a variety of raw materials from foreign vendors with amounts payable in foreign currency (FC). The company needs to acquire 20,000 units of raw materials, and the goods are expected to have a price of 100,000 FC. Assume that the inventory can be subsequently sold to U.S. customers for $160,000. Jackson is contemplating committing to the purchase of the inventory on September 1 with delivery on November 1. However, rather than making a commitment, the company could forecast a probable purchase of inventory with delivery on November 1. In either case, assume that on September 1 the company would either (a) acquire a forward contract to buy 100,000 FC with a forward date of November 1 or (b) acquire an option to buy FC in November at a strike price of $1.250. The option premium is expected to cost $2,100.Various spot rates, forward rates, and option values are as follows:   Spot Rate Forward Rate forNovember 1 Time Value ofOption September 1 . . . .…

Kingsfield establishes a subsidiary operation in a foreign country on January 1, 2020. The country’s currency is the rial (R). To start this business, Kingsfield invests 10,000 rials. Of this amount, it spends 3,000 rials immediately to acquire equipment. Later, on April 1, 2020, it also purchases land. All subsidiary operational activities occur at an even rate throughout the year. Kingsfield uses the U.S. dollar as its reporting currency. The U.S. dollar ($) exchange rates for the rial for 2020 follow:         January 1 $ 1.71 April 1   1.59 June 1   1.66 Weighted average   1.64 December 31   1.62     As of December 31, 2020, the subsidiary reports the following trial balance:     Debits   Credits Cash R 8,000       Accounts receivable   9,000       Equipment   3,000       Accumulated depreciation       R 600 Land   5,000       Accounts payable         3,000 Notes payable (due 2028)         5,000 Common stock         10,000 Dividends declared…