Assignment $2$: Forex Hedging Transactions

Kiwi Corporation, a U$.$S$.$ enterprise, sold product to a customer in New Zealand on $1$ February $2024$ for NZD $5,400,000$ with payment required on $31$ May $2024.$ Kiwi agreed to accept payment in New Zealand Dollars on that date. Use

xe$.$com $($Tools $>$ Historical Currency Rates$)$ to determine the relevant exchange rates.

$\backslash$table$[[,$Spot rate $($USD $/$ NZD$)],[1$ February $2024,],[31$ May $2024,]]$

Additionally, on $1$ February Kiwi received a quote for a forward contract with a settlement date of $31$ May $2024$ and a $$\frac{0\mathrm{.}6390}{?}$ NZD forward rate.

Required:

Assume that Kiwi did not hedge this transaction. Determine the amount of exchange gain or loss from foreign currency transactions that would be recognized in the $2024$ income statements.

Assume Kiwi entered into a forward contract to hedge the foreign currency denominated accounts receivable and accounts for the hedge as a fair value hedge. Determine the net gain or loss from foreign currency transactions that would be recognized in the $2024$ income statements.

In hindsight, was Kiwi better off without hedging or with the hedging strategy?

Eximce purchased product from a company in Thailand agreeing to pay BHT $15,000,00060$ days later. At the time of the sale the spot rate was BHT $1\mathrm{.}00=$USD $0\mathrm{.}0289.$ At the settlement date the spot rate is BHT $1\mathrm{.}00=$ USD $0\mathrm{.}0244.$

Required:

Determine net gain or loss from the unhedged transaction.

Starting with the same facts as above, assume Eximco decided to hedge the transaction with a $60-$day call option carrying a $$2,000$ option premium and a strike price of BHT $1\mathrm{.}00=$ USD $0\mathrm{.}0241$ determined by the bank.

Required:

Determine net gain or loss from the hedged transaction.