On November 15, 2008, Solanski Inc. imported 500,000 barrels of oil from an oil company in Venezuela. Solanski agreed to pay 50,000,000 bolivars on January 15, 2009. To ensure that the dollar outlay for the purchase will not fluctuate, the company entered into a forward contract to buy 50,000,000 bolivars on January 15 at the forward rate of $.0269. Direct exchange rates on various dates were:

Solanski Inc. is a calendar-year company.

Required:
Compute the following:
1. The dollars to be paid on January 15, 2009, to acquire the 50,000,000 bolivars from the exchange dealer.
2. The dollars that would have been paid to settle the account payable had Solanski not hedged the purchased contract with the forward contract.
3. The discount or premium on the forward contract.
4. The transaction gain or loss on the exposed liability related to the oil purchase in 2008 and 2009.
5. The transaction gain or loss on the forward contract in 2008 and2009.

Transcribed Image Text:

Forward Rate 1/15 Delivnry Spot Rate November 15 December 31 January 15 $.0239 0224 0291 $.0269 0254