Asked by Nurul Syairah on Jun 27, 2024
Verified
What is the net exchange gain (loss) on the forward contract?
A) $(2,100)
B) $(700)
C) $700
D) $1,400
Forward Contract
A customized contract between two parties to buy or sell an asset at a specified price on a future date.
Exchange Gain
The profit resulting from foreign exchange transactions and the fluctuation in exchange rates, realizing a higher value in the home currency.
Net Loss
The amount by which total expenses exceed total revenues for a business during a specific period, indicating a financial loss.
- Ascertain and calculate the premium or discount inherent in forward exchange agreements.
- Develop comprehension of the treatment and accounting for gains or losses in foreign currency transactions.
Verified Answer
AA
alreem albrahimJun 30, 2024
Final Answer :
B
Explanation :
Step 1: Calculate the amount received in USD from the sale of goods:
500,000 CHF x $1.0329/CHF = $516,450
Step 2: Calculate the amount to be paid in USD based on the forward contract:
500,000 CHF x $1.0315/CHF = $515,750
Step 3: Calculate the net exchange gain (loss):
Amount received in USD - Amount paid in USD
= $516,450 - $515,750
= $700 loss (since the spot rate at execution was worse than the forward rate)
Therefore, the answer is B) $(700).
500,000 CHF x $1.0329/CHF = $516,450
Step 2: Calculate the amount to be paid in USD based on the forward contract:
500,000 CHF x $1.0315/CHF = $515,750
Step 3: Calculate the net exchange gain (loss):
Amount received in USD - Amount paid in USD
= $516,450 - $515,750
= $700 loss (since the spot rate at execution was worse than the forward rate)
Therefore, the answer is B) $(700).
Learning Objectives
- Ascertain and calculate the premium or discount inherent in forward exchange agreements.
- Develop comprehension of the treatment and accounting for gains or losses in foreign currency transactions.