On October 5th, Excelsior Corporation, a U.S. company, placed an order for 20,000 units fromShanghai, Inc. in China. The cost of the order was 2,000,000 yuan when the spot rate was$.015. To minimize the exchange rate risk, Excelsior entered into a forward contract to purchase2,000,000 yuan at a rate of .018. This forward contract meets the criteria to be designated as afair value hedge. On November 15 ^ (th) Excelsior received the 20,000 units. At that time, thespot rate was $.020. On December 10 th Excelsior paid Shanghai 2,000,000 yuan, when thespot rate was $.017, What amount will Excelsior recognize as a net gain/ loss with respect to thistransaction ?Select one:a. $6,000 gainb. There is no gain or loss because the forward contract serves as a hedge against thistransaction.c. $4,000 gaind. $6,000 losse. $4,000 loss

Order cost: 2,000,000 yuanSpot rate: $0.015

Answered: On October 5th, Excelsior Corporation,…

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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