On December 15, 2009, Chippy , Inc. purchased an option for P50,000 to buy 100,000 kilos of Jumbo potatoes at a strike price of P30 per kilo. The intrinsic value of the option was designated as a cash flow hedge. The following fair values were relevant. 12/15/09 12/31/09 Fair value of Jumbo potatoes in the commodity market Fair value of option in the derivative market P 30 P 32 P50,000 P 230,000 6) What is the total amount that should be taken into profit or loss? a. РО b. P 180,000 gain c. P 20,000 loss d. P 200,000 gain

On December 15, 2009, Chippy , Inc. purchased an option for P50,000 to buy 100,000 kilos of Jumbo potatoes at a strike price of P30 per kilo. The intrinsic value of the option was designated as a cash flow hedge. The following fair values were relevant. 12/15/09 12/31/09 Fair value of Jumbo potatoes in the commodity market Fair value of option in the derivative market P 30 P 32 P50,000 P 230,000 6) What is the total amount that should be taken into profit or loss? a. РО b. P 180,000 gain c. P 20,000 loss d. P 200,000 gain

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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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.
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On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,110,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,110,000 pesos in three months at a strike price of $0.076. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows: Date June 1 June 30 September 1 Maxwell must close its books and prepare its second-quarter financial statements on June 30. a-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars. a-2. What is the impact on net income over the two accounting periods? b-1. Assuming that Maxwell designates the foreign currency option as a fair value…
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Problem 9-19 (Algo) (LO 9-9) Shandra Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 132,000 pounds, with delivery and payment to be made on June 15. On April 15, when the spot rate is $1.47 per pound, Shandra purchases a two-month call option on 132,000 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 $1.47 per pound and costs $1,320. 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 $1.520 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…
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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.
EBOOK Mike Suerth sold a call option on Canadian dollars for $0.01 per unit. The strike price was $0.76, and the spot rate at the time the option was exercised was $0.85. Assume Mike did not obtain Canadian dollars until the option was exercised. Also assume that there are 54,900 units in a Canadian dollar option. What was Mike's net profit on the call option? Use a minus sign to enter loss values, if any. Round your answer to the nearest dollar. -41175
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On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,170,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,170,000 pesos in three months at a strike price of $0.082. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows: Put Option Premium Spot Date for September 1 Rate (strike price $0.082) June 1 S 0.082 June 30 0.081 September 1 0.080 $ 0.0045 0.0032 N/A Maxwell must close its books and prepare its second-quarter financial statements on June 30. a-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars. a-2. What is the impact on net income over…

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