The current spot price for one ounce of gold is 1,238.74. Company A and Company B enter into two forward contracts; one expires at the end of 6 months and the other expires at the end of 9 months. Each forward contract calls for a physical exchange of 100 ounces of gold. The spot price for one ounce of gold 6 months from today is 1,263.76 and coincidentally, that is the spot price for one ounce of gold in 9 months. Company A is short in both contracts (and hence Company B is long in both). Each contract is held to expiration. The continuously compounded interest rate is 4%. What is the total profit realized by Company B after 9 months? Possible Answers A-1,271 11 0 c 1,271 D 2,502 3,773

The current spot price for one ounce of gold is 1,238.74. Company A and Company B enter into two forward contracts; one expires at the end of 6 months and the other expires at the end of 9 months. Each forward contract calls for a physical exchange of 100 ounces of gold. The spot price for one ounce of gold 6 months from today is 1,263.76 and coincidentally, that is the spot price for one ounce of gold in 9 months. Company A is short in both contracts (and hence Company B is long in both). Each contract is held to expiration. The continuously compounded interest rate is 4%. What is the total profit realized by Company B after 9 months? Possible Answers A-1,271 11 0 c 1,271 D 2,502 3,773

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

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The current spot price for one ounce of gold is 1,238.74. Company A and Company B enter into two forward contracts; one expires at the end of 6 months and the other expires at the end of 9 months. Each forward contract calls for a physical exchange of 100 ounces of gold. The spot price for one ounce of gold 6 months from today is 1,263.76 and coincidentally, that is the spot price for one ounce of gold in 9 months. Company A is short in both contracts (and hence Company B is long in both). Each contract is held to expiration. The continuously compounded interest rate is 4%. What is the total profit realized by Company B after 9 months? Possible Answers : A. -1,271 B. 0 C. 1,271 D. 2,502 E. 3,773
On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to sell 100,000 rubles in four months (on January 31, 2018) and receive $39,000 in U.S. dollars. Exchange rates for the ruble follow:Sharp’s incremental borrowing rate is 12 percent. The present value factor for one month at an annual interest rate of 12 percent (1 percent per month) is 0.9901. Sharp must close its books and prepare financial statements on December 31.a. Prepare journal entries, assuming that Sharp entered into the forward contract as a fair value hedge of a 100,000 ruble receivable arising from a sale made on October 1, 2017. Include entries for both the sale and the forward contract.b. Prepare journal entries, assuming that Sharp entered into the forward contract as a fair value hedge of a firm commitment related to a 100,000 ruble sale that will be made on January 31, 2018. Include entries for both the firm commitment and the forward contract. The fair value of the firm…
8
On March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a supplier in Norway in three months. On March 1, when the spot rate is $0.28 per Norwegian krone, Derby enters into a forward contract to purchase 617,500 Norwegian kroner at a three-month forward rate of $0.29. Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight-line basis. At the end of three months, when the spot rate is $0.286 per Norwegian krone, Derby orders and receives the merchandise, paying 617,500 kroner. The merchandise is sold within 30 days. Required: a-1. Prepare all journal entries for Derby Corporation related to this transaction and hedge. a-2. What amount should Derby Corporation report in the current year's net income as cost of goods sold? b. What amount should Derby Corporation report in the current year's net income as foreign exchange gain or loss? Complete this question by entering your…
On October 1, 2024, Wildhorse Corporation ordered some equipment from a supplier for 322,000 euros. Delivery and payment are to occur on November 15, 2024. The spot rates on October 1 and November 15, 2024, are $1.20 and $1.30, respectively. (a) - Your answer is partially correct. Assume that Wildhorse entered into a forward contract on October 1, 2024, to hedge the firm commitment. The forward rates for euros for November 15 delivery were October 1 November 15 $1.23 $1.30 Furthermore, assume the equipment was purchased and paid for on November 15. Prepare all journal entries needed to record and settle the hedge and to record the purchase of the equipment. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter O for the amounts. List all debit entries before credit entries.)
In August 2021, Commonlo Corp. commits to selling 100 of its merchandise to M&H Co. for P30,000 (P300 per product). The merchandise is to be delivered to M&H over the next 6 months. After 60 merchandises were delivered, the contract is modified and Commonlo promises to deliver 80 more products for an additional P21,600 (P270 per station). At year-end, Commonlo delivered an additional 90 products. All sales are cash on delivery. Assume that the additional term is a prospective modification to the original contract How much revenue will be recognized on the contract for the year 2021? Next « Previous
On December 15, 2001, star glass Co. entered into a 30-day forward contract to buy 10,000 yens at the forward rate of 1.50. 0n December 31, 2001, the forward rate was 1.25 and january 15,2002, the spot rate moved to 1.60. Provide the journal entries under each of the following scenarios: (a) the contract is settled by the actual purchase of yens; and (b) the contract is settled through net cash payment.
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A mining company in Australia has entered into a contract to export iron ore into China with delivery in three months’ time. The contract is denominated in Chinese Yuan, CNY and is valued at CNY 500 million. The current spot exchange rate is AUD/CNY 5.18. Assume that the expected spot rate in three months’ time is AUD/CNY 5.13. The three-month futures contract for Australian dollar and Chinese Yuan is trading at AUD/CNY 5.09. Should the mining company use the futures market to hedge the exchange rate exposure? Explain why or why not?
Commonly Corp. agrees to sell 100 of its products to M&H Co. for P30, 000 in August 2021. (P300 per product). Over the following six months, M&H will get the goods. The contract is updated after 60 items have been delivered, and Communion agrees to supply 80 more items for an extra P21, 600 (P270 per station) 90 more goods were supplied by commonly towards the conclusion of the year. Every sale is cash-on-delivery. Assume that the extra clause represents a potential amendment to the original contract. What annual income will be reported on the contract?

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