On April 1, A.C. Corporation a calendar-year U.S. electronics manufacturer, buys 770000 Yen worth of computer chips from the Hidachi company paying 10 percent down, the balance to be paid in 3 months. Interest at 8 percent per annum is payable on the unpaid foreign currency balance. The U.S. dollars /Japanese Yen exchange rate on April 1 was $1.00= 107; on July 1 it was $1.00=103.5. What would be the translation gain or loss for this transaction?

On April 1, A.C. Corporation a calendar-year U.S. electronics manufacturer, buys 770000 Yen worth of computer chips from the Hidachi company paying 10 percent down, the balance to be paid in 3 months. Interest at 8 percent per annum is payable on the unpaid foreign currency balance. The U.S. dollars /Japanese Yen exchange rate on April 1 was $1.00= 107; on July 1 it was $1.00=103.5. What would be the translation gain or loss for this transaction?

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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Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

On April 1, A.C. Corporation a calendar-year U.S.
electronics manufacturer,
buys 770000 Yen worth of computer chips from
the Hidachi company paying 10 percent down,
the balance to be paid in 3 months. Interest at 8
percent per annum is payable on the unpaid
foreign currency balance. The U.S. dollars
/Japanese Yen exchange rate on April 1 was
$1.00= 107; on July 1 it was $1.00=103.5.
What would be the translation gain or loss for this
transaction?

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