Amazing Corporation, a U.S. enterprise, sold product to a customer in Wales on October 1, 20x...

 

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Amazing Corporation, a U.S. enterprise, sold product to a customer in Wales on October 1, 20x for £100,000 with payment required on April 1, 20x1. Relevant exchange rates are: October 1, 20xl December 31, 20x1 April 1, 20x2 Spot rate $1.87 Forward rate (to 4/1/x2) $1.85 $1.84 $1.85 $1.90 The discount factor corresponding to the company's incremental borrowing rate for 6 months is 0.95. 6. Assuming that Amazing Corporation does not hedge this transaction, what is the amount of exchange gain or loss that it should show on its December 31, 20x1 income statement? A) Loss $1,000 B) Loss $2,000 C) Gain $1,000 D) Gain $1,900 Spot f100,000 ,87=8137,000 yosferenced forgundChodge) f100,00 L,35: 135,000 7. Assume that Amazing Corporation enters a forward contract on October 1, 20x1 to sell £100,000 six months hence, on April 1, 20x2. How should Amazing Corporation report the forward contract on its December 31, 20xl financial statements? A) Asset $1,950 B) Liability $1,950 C) Asset $1,000 D) Asset $950 8. What term is used to describe the circumstances under which Amazing Corporation is entering the forward contract? A) hedge of an unrecognized foreign currency firm commitment B) hedge of a recognized foreign-currency-denominated asset C) hedge of a forecast foreign-currency-denominated transaction D) hedge of net investment in foreign operations Amazing Corporation, a U.S. enterprise, sold product to a customer in Wales on October 1, 20x for £100,000 with payment required on April 1, 20x1. Relevant exchange rates are: October 1, 20xl December 31, 20x1 April 1, 20x2 Spot rate $1.87 Forward rate (to 4/1/x2) $1.85 $1.84 $1.85 $1.90 The discount factor corresponding to the company's incremental borrowing rate for 6 months is 0.95. 6. Assuming that Amazing Corporation does not hedge this transaction, what is the amount of exchange gain or loss that it should show on its December 31, 20x1 income statement? A) Loss $1,000 B) Loss $2,000 C) Gain $1,000 D) Gain $1,900 Spot f100,000 ,87=8137,000 yosferenced forgundChodge) f100,00 L,35: 135,000 7. Assume that Amazing Corporation enters a forward contract on October 1, 20x1 to sell £100,000 six months hence, on April 1, 20x2. How should Amazing Corporation report the forward contract on its December 31, 20xl financial statements? A) Asset $1,950 B) Liability $1,950 C) Asset $1,000 D) Asset $950 8. What term is used to describe the circumstances under which Amazing Corporation is entering the forward contract? A) hedge of an unrecognized foreign currency firm commitment B) hedge of a recognized foreign-currency-denominated asset C) hedge of a forecast foreign-currency-denominated transaction D) hedge of net investment in foreign operations

Answer rating: 100% (QA)

6 Since the exporter has not hedged the transaction therefore his lossgain would be the difference b... View the full answer