aribou River. Caribou River, Ltd., a Canadian manufacturer of raincoats, does not selectively hedge its transaction exposure. Instead, if the date of the transaction is known with certainty, all foreign currency-denominated cash flow e following mandatory forward cover formula: . aribou expects to receive multiple payments in Danish kroner over the next year. Kr3,000,000 is due in 90 days; Kr2,300,000 is due in 180 days; and Kr950,000 is due in one year. Using the following spot and forward exchange rate ould be the amount of forward cover required by company policy for each period? What would be the Canadian dollar amount of forward cover required by company policy in 3 months? $ ☐ (Round to the nearest cent.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Mandatory Forward Cover Paying the points forward Receiving the points forward 0-90 days 91-180 days 180 days 90% 70% 45% 100% 90% 50% Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Spot rate, Kr/C$ 4.61 3-month forward rate, Kr/C$ 6-month forward rate, Kr/C$ 12-month forward rate, Kr/CS 4.62 4.65 4.67

aribou River. Caribou River, Ltd., a Canadian manufacturer of raincoats, does not selectively hedge its transaction exposure. Instead, if the date of the transaction is known with certainty, all foreign currency-denominated cash flow e following mandatory forward cover formula: . aribou expects to receive multiple payments in Danish kroner over the next year. Kr3,000,000 is due in 90 days; Kr2,300,000 is due in 180 days; and Kr950,000 is due in one year. Using the following spot and forward exchange rate ould be the amount of forward cover required by company policy for each period? What would be the Canadian dollar amount of forward cover required by company policy in 3 months? $ ☐ (Round to the nearest cent.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Mandatory Forward Cover Paying the points forward Receiving the points forward 0-90 days 91-180 days 180 days 90% 70% 45% 100% 90% 50% Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Spot rate, Kr/C$ 4.61 3-month forward rate, Kr/C$ 6-month forward rate, Kr/C$ 12-month forward rate, Kr/CS 4.62 4.65 4.67

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Kk.233.
Assume that the beer arrived on August 15, and the company made payment on October 15. On August 15, the company entered into a two-month forward contract to purchase 276,000 euros. The company designated the forward contract as a cash flow hedge of a foreign currency payable. Forward points are excluded in assessing hedge effectiveness and amortized to net income using a straight-line method on a monthly basis. Prepare journal entries to account for the import purchase and foreign currency forward contract. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.) Record the foreign exchange loss for the third quarter.
ABC Inc. has 10,000,000 Yen worth of receivables it expects to collect in 3 months’ time. To hedge its currency risk, it decided to hedge with a forward contract at a forward exchange rate of 100 Yen/US$. In 3 months’ time, the exchange rate is 105 Yen/US$. How much does ABC Inc. receive?
On March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a supplier in Norway in three months. On March 1, when the spot rate is $0.28 per Norwegian krone, Derby enters into a forward contract to purchase 617,500 Norwegian kroner at a three-month forward rate of $0.29. Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight-line basis. At the end of three months, when the spot rate is $0.286 per Norwegian krone, Derby orders and receives the merchandise, paying 617,500 kroner. The merchandise is sold within 30 days. Required: a-1. Prepare all journal entries for Derby Corporation related to this transaction and hedge. a-2. What amount should Derby Corporation report in the current year's net income as cost of goods sold? b. What amount should Derby Corporation report in the current year's net income as foreign exchange gain or loss? Complete this question by entering your…
None
Shandra Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 107,000 pounds, with delivery and payment to be made on June 15. On April 15, when the spot rate is $1.27 per pound, Shandra purchases a two-month call option on 107,000 pounds and designates this option as a cash flow hedge of a forecasted foreign currency transaction. The time value of the option is excluded in assessing hedge effectiveness; the change in time value is recognized in net income over the life of the option. The option has a strike price of $1.27 per pound and costs $1,070. The goods are received and paid for on June 15. Shandra sells the imported goods in the local market immediately. The spot rate for pounds is $1.320 on June 15, Required: a-1. Prepare all journal entries for Shandra Corporation related to this transaction and hedge. a-2. What amount should Shandra Corporation report in net income as cost of goods sold for the quarter ending June 30? b. What amount…
Icebreaker Company (a U.S.-based company) sells parts to a foreign customer on December 1, 2020, with payment of 16,000 dinars to be received on March 1, 2021. Icebreaker enters into a forward contract on December 1, 2020, to sell 16,000 dinars on March 1, 2021. The forward points on the forward contract are excluded in assessing hedge effectiveness and are amortized to net income using a straight-line method on a monthly basis. Relevant exchange rates for the dinar on various dates are as follows: Date Spot Rate Forward Rate(to March 1, 2021) December 1, 2020 $ 3.40 $ 3.475 December 31, 2020 3.50 3.600 March 1, 2021 3.65 N/A Icebreaker must close its books and prepare financial statements at December 31. a-1. Assuming that Icebreaker designates the forward contract as a cash flow hedge of a foreign currency receivable, prepare journal entries for the sale and foreign currency forward contract in U.S. dollars. a-2. What is the impact on…
Michelle Industries issued a Swiss franc--denominated 5-year discount note for SFr200 million The proceeds were converted to U.S. dollars to purchase capital equipment in the United States. The company want to hedge this currency expose and is considering the following alternatives: At-the-money Swiss franc call options. • Swiss franc forwards • Swiss franc futures. ● What is an advantage of the suitability of this strategy in relation to Michelle's hedging objective? O The major difference from the firm's perspective between futures and forwards is in the book-to-market feature of futures. The put option is distinguished by its symmetric payoff. O The call option gives the company the ability to benefit from depreciation in the franc, but at a cost equal to the option premium. There is no advantage.
nine jouranl entries
Goodyear, a U.S. firm, sells tires to Airbus UK, and will receive payment of £1,000,000 in one year. Goodyear's bank quotes the information below: o The spot exchange rate is o The 1-year interest rate on dollars is ius = 2.00% e$/£ $1.50/£ %3D o The 1-year interest rate on pounds is iUK = 5.50% o The 1-year forward rate on pounds is fs/£ = $1.45/£ %3D In addition, Goodyear contacts private forecasters in the market and concludes: o The 1-year-ahead expected exchange rate on the Pound is eex £ = $1.40/£
A friend of yours tells you that in Japan a specific Japanese treasury note matures for $1000 in two years can be bought or sold for $925. What is the annualized risk-free rate in this example? ) You happen to notice the same security can be purchased or sold domestically for $945, how do you arbitrage this position? How many times should you make this trade? How likely is it that your friend’s information is current and correct?

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