On March 1, 20x1, ABC Co. sold inventory to a foreign company for FC 1,000,000 (FC meansforeign currency) when the spot exchange rate is FC 40: ₱1. The payment is due on April 1, 20x1.ABC Co. is concerned about the possible fluctuation in exchange rates, so on this date, ABC Co.entered into a forward contract to sell FC 1,000,000 for ₱25,000 to a broker. According to the termsof the forward contract, if FC 1,000,000 is worth less than ₱25,000 on April 1, 20x1, ABC Co. shallreceive from the broker the difference; if it is worth more than ₱25,000, ABC Co. shall pay the brokerthe difference. If the exchange rate on April 1, 20x1 is FC35: ₱1, how much is the net cash settlement? a. 3,571 receipt b. 3,571 payment c. 4,231 receipt d. 4,231 payment
On March 1, 20x1, ABC Co. sold inventory to a foreign company for FC 1,000,000 (FC meansforeign currency) when the spot exchange rate is FC 40: ₱1. The payment is due on April 1, 20x1.ABC Co. is concerned about the possible fluctuation in exchange rates, so on this date, ABC Co.entered into a forward contract to sell FC 1,000,000 for ₱25,000 to a broker. According to the termsof the forward contract, if FC 1,000,000 is worth less than ₱25,000 on April 1, 20x1, ABC Co. shallreceive from the broker the difference; if it is worth more than ₱25,000, ABC Co. shall pay the brokerthe difference. If the exchange rate on April 1, 20x1 is FC35: ₱1, how much is the net cash settlement?
a. 3,571 receipt
b. 3,571 payment
c. 4,231 receipt
d. 4,231 payment
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