Fire Protection Ltd. is a fire suppression company that installs sprinkler systems in commercial buildings. It is
Question:
Fire Protection Ltd. is a fire suppression company that installs sprinkler systems in commercial buildings. It is currently working on a large project and relies completely on US suppliers for its components. The company is worried about the volatility for the CDN/US currency exchange rate. Fire Protection agrees to buy $50,000 in US currency for $65,000 Canadian from MBO bank in 30 days from now. The contract is priced so that it has a $500 fair value on the issue date. On the settlement date the exchange rate is $1.25 CDN = $1 US.
Required:
a) Record the entries related to this forward contract (for the issue date and the settlement date) assuming that the contract is settled on a gross basis.
b) Record the entries related to this forward contract (for the issue date and the settlement date) assuming that the contract is settled on a net basis.
Spreadsheet Modeling & Decision Analysis A Practical Introduction to Management Science
ISBN: 978-0324656633
5th edition
Authors: Cliff T. Ragsdale