The following information pertains to questions 19 through 21 inclusively. Maple Leaf Ltd. (Maple Leaf) is a Canadian company with a December 31 year-end. On November 1, 2009 when the U.S. dollar was worth $1.1650 CDN, Maple Leaf bought merchandise from a U.S customer for $300,000 U.S. On December 1, the spot rate was $1.1350 CDN and the three-month forward rate was $1.1300 CDN. In order to minimize its Foreign Exchange (f/x) risk and exposure, Maple Leaf entered into a contract with its bank on December 1, 2009 to buy $300,000 U.S. in three months time. The Spot rate at year-end was $1.1600 CDN. On March 1, 2010, Maple Leaf delivered the $300,000 U.S. to its client and settled its contract with the bank. Significant dates pertaining to this transaction are: Transaction Date: November 1, 2009 Spot rate: U.S. $1-$1.1650 CDN. Year-end: December 31, 2009 Spot rate: U.S. $1-$1.1600 CDN. b. $339,000. c. $343,500. d. $349,500. 19. At what amount (in Canadian Dollars) would the Forward Contract with the bank be recorded? a. $337,500. Hedge Date: December 1, 2009 Spot rate: U.S. $1-$1.1350 CDN. b. a $9,000 gain. c. a $9,000 loss. d. a $7,500 gain. Settlement Date: March 1, 2010 Spot rate: U.S. $1-$1.1680 CDN. 20. What is the amount of Maple Leaf's Foreign Exchange Gain or Loss just prior to its Hedge (December 1, 2009)? a. A $7,500 loss. 21. Was Maple Leaf smart to make this hedge? a. Yes. b. No.
The following information pertains to questions 19 through 21 inclusively. Maple Leaf Ltd. (Maple Leaf) is a Canadian company with a December 31 year-end. On November 1, 2009 when the U.S. dollar was worth $1.1650 CDN, Maple Leaf bought merchandise from a U.S customer for $300,000 U.S. On December 1, the spot rate was $1.1350 CDN and the three-month forward rate was $1.1300 CDN. In order to minimize its Foreign Exchange (f/x) risk and exposure, Maple Leaf entered into a contract with its bank on December 1, 2009 to buy $300,000 U.S. in three months time. The Spot rate at year-end was $1.1600 CDN. On March 1, 2010, Maple Leaf delivered the $300,000 U.S. to its client and settled its contract with the bank. Significant dates pertaining to this transaction are: Transaction Date: November 1, 2009 Spot rate: U.S. $1-$1.1650 CDN. Year-end: December 31, 2009 Spot rate: U.S. $1-$1.1600 CDN. b. $339,000. c. $343,500. d. $349,500. 19. At what amount (in Canadian Dollars) would the Forward Contract with the bank be recorded? a. $337,500. Hedge Date: December 1, 2009 Spot rate: U.S. $1-$1.1350 CDN. b. a $9,000 gain. c. a $9,000 loss. d. a $7,500 gain. Settlement Date: March 1, 2010 Spot rate: U.S. $1-$1.1680 CDN. 20. What is the amount of Maple Leaf's Foreign Exchange Gain or Loss just prior to its Hedge (December 1, 2009)? a. A $7,500 loss. 21. Was Maple Leaf smart to make this hedge? a. Yes. b. No.
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
Problem 1PS
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Transcribed Image Text:The following information pertains to questions 19 through 21 inclusively.
Maple Leaf Ltd. (Maple Leaf) is a Canadian company with a December 31 year-end. On November 1, 2009 when the U.S.
dollar was worth $1.1650 CDN, Maple Leaf bought merchandise from a U.S customer for $300,000 U.S. On December 1,
the spot rate was $1.1350 CDN and the three-month forward rate was $1.1300 CDN. In order to minimize its Foreign
Exchange (f/x) risk and exposure, Maple Leaf entered into a contract with its bank on December 1, 2009 to buy $300,000
U.S. in three months time. The Spot rate at year-end was $1.1600 CDN. On March 1, 2010, Maple Leaf delivered the
$300,000 U.S. to its client and settled its contract with the bank. Significant dates pertaining to this transaction are:
Transaction Date: November 1, 2009
Spot rate: U.S. $1=$1.1650 CDN.
Year-end: December 31, 2009
Spot rate: U.S. $1=$1.1600 CDN.
b. $339,000.
c. $343,500.
d. $349,500.
Hedge Date: December 1, 2009
Spot rate: U.S. $1=$1.1350 CDN.
19. At what amount (in Canadian Dollars) would the Forward Contract with the bank be recorded?
a. $337,500.
Settlement Date: March 1, 2010
Spot rate: U.S. $1=$1.1680 CDN.
21. Was Maple Leaf smart to make this hedge?
a. Yes.
b. No.
20. What is the amount of Maple Leaf's Foreign Exchange Gain or Loss just prior to its Hedge (December 1, 2009)?
a. A $7,500 loss.
b. a $9,000 gain.
c. a $9,000 loss.
d. a $7,500 gain.
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