Use the information for following problem(s). Firm AAA is located in the U.S.. It has purchase from
Question:
Use the information for following problem(s).
Firm AAA is located in the U.S.. It has purchase from a Germany firm €1,000,000 worth of product. The payable will be processed a year later. Refer to the following for details.
∙ The current spot exchange rate is $1.40/euro
∙ The one year forward rate is $1.30/euro
∙ The Euro zone annual interest rate = 2%
∙ The U.S. annual interest rate = 3%
∙ Call options for euro has a strike price $1.38, premium price is $0.02
Question:
If firm AAA locks in the forward hedge at $1.30/euro, and the spot rate when the transaction was recorded on the books was $1.40/euro, this will result in a "foreign exchange accounting transaction ________" of ________.
gain; euro 50,000 | ||
loss; euro 50,000 | ||
loss; $100,000 | ||
gain; $100,000 |
Intermediate Accounting
ISBN: 978-0470161012
9th Canadian Edition, Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield.