1. ABC Corp has Accounts Receivable of FC 400,000 and Accounts Payable of FC 300,000 on both March 31 and April 30, 2010. The applicable exchange rates at that date were as follows: March 30 April 30 1FC= .37 US 1FC=.35 US 1FC=.36 US 1FC= .39 US Spot rate Forward rate (1 month) a. What is the FX transaction gain or loss on Accounts Receivable on April 30, 2010? b. What is the FX transaction gain or loss on Accounts Payable on April 30, 2010? c. If on March 31, ABC wishes to hedge its exposure to changing exchange rates what is the appropriate action it will take. Answer by saying whether ABC will enter a spot contract or forward contract and say whether the contract will involve purchasing FC and selling US dollars, or purchasing US dollars and selling FC and specify the appropriate exchange rate.
1. ABC Corp has Accounts Receivable of FC 400,000 and Accounts Payable of FC 300,000 on both March 31 and April 30, 2010. The applicable exchange rates at that date were as follows: March 30 April 30 1FC= .37 US 1FC=.35 US 1FC=.36 US 1FC= .39 US Spot rate Forward rate (1 month) a. What is the FX transaction gain or loss on Accounts Receivable on April 30, 2010? b. What is the FX transaction gain or loss on Accounts Payable on April 30, 2010? c. If on March 31, ABC wishes to hedge its exposure to changing exchange rates what is the appropriate action it will take. Answer by saying whether ABC will enter a spot contract or forward contract and say whether the contract will involve purchasing FC and selling US dollars, or purchasing US dollars and selling FC and specify the appropriate exchange rate.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Help with parts A,B,C
Transcribed Image Text:1. ABC Corp has Accounts Receivable of FC 400,000 and Accounts Payable of FC 300,000 on both
March 31 and April 30, 2010. The applicable exchange rates at that date were as follows:
March 30
April 30
1FC= .37 US
1FC=.35 US
1FC=.36 US
1FC= .39 US
Spot rate
Forward rate (1 month)
a. What is the FX transaction gain or loss on Accounts Receivable on April 30, 2010?
b. What is the FX transaction gain or loss on Accounts Payable on April 30, 2010?
c. If on March 31, ABC wishes to hedge its exposure to changing exchange rates what is the
appropriate action it will take. Answer by saying whether ABC will enter a spot contract or
forward contract and say whether the contract will involve purchasing FC and selling US
dollars, or purchasing US dollars and selling FC and specify the appropriate exchange rate.
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