TradeWorld Co., a mining company with 100,000 pounds of copper inventory on 1 September 2020, with a total cost of US$ 420,000. On 1 September 2020, TradeWorld Co. entered into a sale future contract maturing on 1 February 2021 at a future price of 4.25 Soybean spot and forward prices (in US$) are as follows:

Date 1-September-20 31-December-20 1-February-21

Copper spot prices 4.2 4.3 4.35

Copper future price for maturity 1 February 2021 4.25 4.4 4.35

Required:

(a) Explain if Hedge exists. If yes, identify the type of hedge, hedging instrument, and hedged item. If no, provide the reason(s).

(b) Record the journal entries on 31 December 2020 and 1 February 2021 in the books of TradeWorld Co.

(c) A UK trading company whose functional currency is pound, and recently acquired 100% a Chinese company. Apply the knowledge of the hedge of a net investment in a foreign entity you have learnt and provide your advice to the company why it needs to hedge and how to hedge the risk of net investment in a foreign entity by an example. 

Answer rating: 100% (QA)

Trade world co entered to sole a future castract on 1st feb 200 These exista susic of increap in val... View the full answer