On December 1, 2016, Mosby, a U.S. company, sells goods to a German company, with payment...

 

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On December 1, 2016, Mosby, a U.S. company, sells goods to a German company, with payment of 300,000 euros to be received on March 1, 2017. Mosby also enters into a forward contract on December 1, 2016 to sell 300,000 euros on March 1, 2017. Exchange rates for the euro on various dates are as follows: Date Spot Rate Forward Rate (to March 1, 2017) December 1, 2016 December 31, 2016 March 1, 2017 $1.28 1.32 1.34 $1.26 1.30 N/A Assuming that Mosby designates the forward contract as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2016 resulting solely from the fluctuation in the value of Euro? Mosby amortizes forward points on a monthly basis using a straight-line method. On December 1, 2016, Mosby, a U.S. company, sells goods to a German company, with payment of 300,000 euros to be received on March 1, 2017. Mosby also enters into a forward contract on December 1, 2016 to sell 300,000 euros on March 1, 2017. Exchange rates for the euro on various dates are as follows: Date Spot Rate Forward Rate (to March 1, 2017) December 1, 2016 December 31, 2016 March 1, 2017 $1.28 1.32 1.34 $1.26 1.30 N/A Assuming that Mosby designates the forward contract as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2016 resulting solely from the fluctuation in the value of Euro? Mosby amortizes forward points on a monthly basis using a straight-line method.

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To solve this problem we need to calculate the gain or loss on the foreign currency receivable and t... View the full answer