Joey hedges its foreign currency payable commitment with a forward exchange contract – fair value hedge to receive $1,200 in 270 days (the 120 days delivery plus 150 days of credit period). The forward rate for a 270-day forward contract is P41.25 to 1$. The purpose of this 270-day forward exchange contract is two-fold. First, for the 120 days from November 1, 2020 until March 1, 2021, the forward exchange contract is a hedge of an identifiable foreign currency firm commitment. For the 150-day period from March 1, 2021 until August 1, 2021, the forward exchange contract is a hedge of a foreign currency exposed net liability position.
On November 1, 2020, Joey Company contracts to purchase special order goods from New York company. Their manufacture and delivery will take place in 120 days (on March 1, 2021 ). The contract price is $1,200, to be paid by August 1, 2020 which is 150 days after delivery.
On November 1, 2020, Joey hedges its foreign currency payable commitment with a forward exchange contract – fair value hedge to receive $1,200 in 270 days (the 120 days delivery plus 150 days of credit period). The forward rate for a 270-day forward contract is P41.25 to 1$. The purpose of this 270-day forward exchange contract is two-fold. First, for the 120 days from November 1, 2020 until March 1, 2021, the forward exchange contract is a hedge of an identifiable foreign currency firm commitment. For the 150-day period from March 1, 2021 until August 1, 2021, the forward exchange contract is a hedge of a foreign currency exposed net liability position.
The following exchange rates at various dates are as follows (fiscal year-end is December 31):
| 11/01/2020 | 12/31/2020 | 3/01/2021 | 8/01/2021 | |
| Spot rate | P40.60 | P40.75 | P40.70 | P41.55 |
| 60-day forward rate | 40.65 | 40.80 | 40.85 | 40.40 |
| 120-day forward rate | 40.75 | 40.85 | 40.90 | 40.50 |
| 150-day forward rate | 40.82 | 40.87 | 40.95 | 40.57 |
| 210-day forward rate | 0.95 | 41.00 | 41.25 | 40.60 |
| 270-day forward rate | 0.95 | 41.50 | 41.60 | 41.90 |
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