The Pier Ten Company, a U.S. company, made credit sales to four customers in Asia on December 15, 2008, and
The Pier Ten Companys fiscal year ends December 31.
1. Use historical exchange rate information available on the Internet at www.oanda.com, FX Daily, to find exchange rates between the U.S. dollar and each foreign currency for December 15, 2008, December 31, 2008, and January 15, 2009.
2. Determine the foreign exchange gains and losses that Pier Ten would have recognized in net income in 2008 and 2009, and the overall foreign exchange gain or loss for each transaction. Determine for which transaction it would have been most important for Pier Ten to hedge its foreign exchange risk.
3. Pier Ten could have acquired a one-month put option on December 15, 2008, to hedge the foreign exchange risk associated with each of the four export sales. In each case, the put option would have cost $100 with the strike price equal to the December 15, 2008, spot rate. Determine for which hedges, if any, Pier Ten would have recognized a net gain on the foreign currencyoption.
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
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