ABC Co. expects the value of yens to decrease in the next 30 days.Accordingly, on December 15, 20x1, ABC Co. enters into a 30-dayforward contract to sell 4,000,000 yens at the forward rate of PO.47,On December 31, 20x1, the forward rate was PO,485 and byJanuary 15, 20x2, the spot rate moved to PO.46.10) The entry to record the forward contract on December 15,20x1 includesa. a debit to forward contract for P60,000b. a credit to forward contract for P60,000c. a debit to loss on forward contract for P60,000d. none11) How much is the gain (loss) on change in fair value of thederivative on December 31, 20x1?a. 60,000 in profit or lossb. (60,0000) in OCIC. (40,000) in OCId. (60,000) in profit or loss12) The derivative asset (liability) to be included in the December31, 20x1 statement of financial position isa. 1,960,000b. (1,920,000)c. 60,0000d. (60,000)

As its name defines, a forward contract is a contract placed between parties to purchase or sale at…

Answered: Co. expects the value of yens to…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You are working at a hedging unit of a multinational company. You are given the following information: USD/MYR SGD/MYR 4.3224/36 3.0043/56 Spot Forward: 1-month 15/19 8/12 3-month 23/39 (a) Calculate the 3-month forward bid and offer rates of SGD/MYR. (b) Assume the no-arbitrage 3-month forward rate of SGD/MYR is 2.9980, illustrate an arbitrage strategy to profit from the mispricing opportunity without using calculation.
On June 1, 2017, Micro Corp. received an order for parts from a Mexican customer at a price of 1,000,000 Mexican pesos with a delivery date of July 31, 2017. On June 1, when the U.S. dollar–Mexican peso spot rate is $0.115, Micro Corp. entered into a two month forward contract to sell 1,000,000 pesos at a forward rate of $0.12 per peso. Micro designates the forward contract as a fair value hedge of the firm commitment to receive pesos, and the fair value of the firm commitment is measured by referring to changes in the peso forward rate. Micro delivers the parts and receives payment on July 31, 2017, when the peso spot rate is $0.118. On June 30, 2017, the Mexican peso spot rate is $0.123, and the forward contract has a fair value of $2,400.What is Micro’s net increase or decrease in cash flow from having entered into this forward contract hedge? Choose the correct.a. $–0–.b. $1,000 increase in cash flow.c. $1,500 decrease in cash flow.d. $2,000 increase in cash flow.
Gan
Star Alien (US company) sold equipment to Heavy Metal Industry (Italian company) for 1-million-euro receivable in one year. The current spot rate is $1.15/€ and the one-year forward rate is $1.20/€. The annual interest rate is 5 percent in Italy and 8 percent in the United States. Star Alien can also purchase a one-year put option on the euro at the strike price of $1.18 per euro for a premium of 9 cents per Euro. What is the future dollar proceeds of this sale using the money market hedge? Question 1 options: $1,180,000. $1,102,800. $1,150,000. $1,118,056. $1,200,000. $1,182,857.
In mid-July, JK Ltd (a US firm) holds a pay-fixed, receive-floating 6×9 FRA contract which was entered into 6 months ago (i.e. in mid-January). The FRA rate is 0.70% per annum and the notional amount is $20,000,000. The 6×9 FRA reaches expiration now (in mid-July), and the following LIBOR rates are observed from the market: Maturity 30-day LIBOR Interest rate (p.a.) 0.5% 90-day LIBOR 1.1% 180-day LIBOR 1.2% 270-day LIBOR 1.3% Note: The FRA contracts follow the standard US FRA settlement terms and adopt the Actual/360 day count convention. All interest rates are measured with a compounding frequency reflecting the length of the period they apply to. Required: (a) Based on the information above, explain whether JK Ltd makes a gain or loss by showing the settlement amount for JK Ltd to settle the 6×9 FRA at expiration. Report your answer in 2 decimal places (dps). (b) Suppose that JK Ltd plans to take a 20-million 90-day floating-rate loan in mid-October from a local bank. The firm wants…
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Suppose that a party wanted to enter an FRA that expires in 121 days and is based on 56-day LIBOR. The dealer quotes a rate of 0.033 on the FRA. Assume that at expiration, the 56-day LIBOR is 0.028, and the notional amount is USD10,000,000. What is the payoff of the FRA short position? |-7744.05
2) XYZ has cash of FC 100,000 on both April 30 and May 31, 2010. The applicable spot rates for April 30 and May 31 are as follows: April 30: 1US = 5FC May 31: 1 US= 4FC How much is the FX transaction gain or loss on May 31, 2010.
Star Alien (US company) sold equipment to Heavy Metal Industry (Italian company) for 1-million-euro receivable in one year. The current spot rate is $1.15/€ and the one-year forward rate is $1.20/€. The annual interest rate is 5 percent in Italy and 8 percent in the United States. Star Alien can also purchase a one-year put option on the euro at the strike price of $1.18 per euro for a premium of 9 cents per Euro. Assuming that the forward exchange rate is the best predictor of the future spot rate, what is the expected future dollar revenue when the option hedge is used? $1,200,000. $1,150,000. $1,297,200. $1,180,000. $1,180,000. $1,082,800. $1,102,800.
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