PROBLEM SOLVING (MCQ) The TAGALOG CORPORATION purchases merchandise from a foreign exporter on November 15, 2014 for FC 100,000, payable in that currency on January 15, 2015. TAGALOG predicts the Philippine peso might probably weaken against the foreign currency over the 60-day period and entered into a hedge of the exposed foreign currency amount against the risk of exchange losses. The hedging relationship was designed in a way that it would be fully effective thru the entire hedge period, and selected a forward contract for that purpose. The following are relevant spot and forward rates at selected dates. 11/15/14 12/31/14 01/15/15 P0.4345 Spot rates P0.4295 P0.4245 Forward rates P0.4325 PO.4300 P0.4345 1. How much should TAGALOG CORPORATION report as transaction gain or (loss) on its Accounts payable (in FC) at December 31, 2014 (its current year-end)? A. P(300) C. P250 B. P(250) D. P500
PROBLEM SOLVING (MCQ) The TAGALOG CORPORATION purchases merchandise from a foreign exporter on November 15, 2014 for FC 100,000, payable in that currency on January 15, 2015. TAGALOG predicts the Philippine peso might probably weaken against the foreign currency over the 60-day period and entered into a hedge of the exposed foreign currency amount against the risk of exchange losses. The hedging relationship was designed in a way that it would be fully effective thru the entire hedge period, and selected a forward contract for that purpose. The following are relevant spot and forward rates at selected dates. 11/15/14 12/31/14 01/15/15 P0.4345 Spot rates P0.4295 P0.4245 Forward rates P0.4325 PO.4300 P0.4345 1. How much should TAGALOG CORPORATION report as transaction gain or (loss) on its Accounts payable (in FC) at December 31, 2014 (its current year-end)? A. P(300) C. P250 B. P(250) D. P500
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![PROBLEM SOLVING (MCQ)
The TAGALOG CORPORATION purchases merchandise from a foreign exporter on November 15, 2014 for FC
100,000, payable in that currency on January 15, 2015. TAGALOG predicts the Philippine peso might probably weaken
against the foreign currency over the 60-day period and entered into a hedge of the exposed foreign currency amount
against the risk of exchange losses. The hedging relationship was designed in a way that it would be fully effective thru
the entire hedge period, and selected a forward contract for that purpose.
The following are relevant spot and forward rates at selected dates.
11/15/14
12/31/14
01/15/15
P0.4345
Spot rates
P0.4295
P0.4245
Forward rates
P0.4325
PO.4300
P0.4345
1. How much should TAGALOG CORPORATION report as transaction gain or (loss) on its Accounts payable (in FC) at
December 31, 2014 (its current year-end)?
A.
P(300) C.
P250
B.
P(250) D.
P500](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb488429f-ba29-41fd-88de-887be550361b%2F52e7f1cb-423d-482c-be3c-8f26781f355b%2Fw0s6emb_processed.jpeg&w=3840&q=75)
Transcribed Image Text:PROBLEM SOLVING (MCQ)
The TAGALOG CORPORATION purchases merchandise from a foreign exporter on November 15, 2014 for FC
100,000, payable in that currency on January 15, 2015. TAGALOG predicts the Philippine peso might probably weaken
against the foreign currency over the 60-day period and entered into a hedge of the exposed foreign currency amount
against the risk of exchange losses. The hedging relationship was designed in a way that it would be fully effective thru
the entire hedge period, and selected a forward contract for that purpose.
The following are relevant spot and forward rates at selected dates.
11/15/14
12/31/14
01/15/15
P0.4345
Spot rates
P0.4295
P0.4245
Forward rates
P0.4325
PO.4300
P0.4345
1. How much should TAGALOG CORPORATION report as transaction gain or (loss) on its Accounts payable (in FC) at
December 31, 2014 (its current year-end)?
A.
P(300) C.
P250
B.
P(250) D.
P500
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