Vitamin, Inc. is a U.S.-based manufacturer and wholesaler. On 10/15/20x1, Almira made its first international sale. They sold $450,000 of products to a non-U.S. customer. Vitamin, Inc. agreed to allow the customer to pay for the purchase in its own currency, the FC. To avoid a penalty, the foreign buyer must make payment to Vitamin by February 2, 20x2. At the time of the sale, the FC/$ spot rate was FC1.97=$1 Vitamin, Inc. has a December 31 year-end. At 12/31/20x1, the foreign currency spot rate was FC1.95 = $1. Required: Explain how Vitamin, Inc. can use: (a) forward exchange contracts and (b) foreign exchange options their foreign currency risk. In your explanation, discuss the type of: (a) forward exchange contract or (b) foreign currency option contracts, they would obtain to hedge their foreign currency risk. No journal entries are required. For Vitamin, Inc.’s foreign customer, explain the type of foreign currency risk the s/he accepts relating to their purchase from Pop, including the implications of appreciation or depreciation of their currency relative to Pop’s currency, the U.S. dollar.
Vitamin, Inc. is a U.S.-based manufacturer and wholesaler. On 10/15/20x1, Almira made its first international sale. They sold $450,000 of products to a non-U.S. customer. Vitamin, Inc. agreed to allow the customer to pay for the purchase in its own currency, the FC. To avoid a penalty, the foreign buyer must make payment to Vitamin by February 2, 20x2. At the time of the sale, the FC/$ spot rate was FC1.97=$1 Vitamin, Inc. has a December 31 year-end. At 12/31/20x1, the foreign currency spot rate was FC1.95 = $1. Required: Explain how Vitamin, Inc. can use: (a) forward exchange contracts and (b) foreign exchange options their foreign currency risk. In your explanation, discuss the type of: (a) forward exchange contract or (b) foreign currency option contracts, they would obtain to hedge their foreign currency risk. No journal entries are required. For Vitamin, Inc.’s foreign customer, explain the type of foreign currency risk the s/he accepts relating to their purchase from Pop, including the implications of appreciation or depreciation of their currency relative to Pop’s currency, the U.S. dollar.
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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Vitamin, Inc. is a U.S.-based manufacturer and wholesaler. On 10/15/20x1, Almira made its first international sale. They sold $450,000 of products to a non-U.S. customer. Vitamin, Inc. agreed to allow the customer to pay for the purchase in its own currency, the FC. To avoid a penalty, the foreign buyer must make payment to Vitamin by February 2, 20x2. At the time of the sale, the FC/$ spot rate was FC1.97=$1
Vitamin, Inc. has a December 31 year-end. At 12/31/20x1, the foreign currency spot rate was FC1.95 = $1.
Required:
- Explain how Vitamin, Inc. can use: (a) forward exchange contracts and (b) foreign exchange options their foreign currency risk.
- In your explanation, discuss the type of: (a) forward exchange contract or (b) foreign currency option contracts, they would obtain to hedge their foreign currency risk. No
journal entries are required.
- In your explanation, discuss the type of: (a) forward exchange contract or (b) foreign currency option contracts, they would obtain to hedge their foreign currency risk. No
- For Vitamin, Inc.’s foreign customer, explain the type of foreign currency risk the s/he accepts relating to their purchase from Pop, including the implications of appreciation or
depreciation of their currency relative to Pop’s currency, the U.S. dollar.
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