Question

1. Jackson Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2021, with payment of 20 million Korean won to be received on January 15, 2022. The following exchange rates applied:
Date Spot Rate Forward Rate to Jan.15
December 16, 2021 $ 0.00082 $ 0.00089 December 31, 2021 0.00080 0.00083 January 15, 2022 0.00086 0.00086 Assuming a forward contract was entered into, the foreign currency was originally sold in the foreign currency market on December 16, 2021 at a:
Forward contract discount $1,400.
Forward contract premium $1,400.
Forward contract discount $600.
Forward discount premium $600.
There is no premium or discount because the fair value of the contract is zero.

Answer 1

The foreign currency was originally sold in the foreign currency market on December 16, 2021 at is $1,400. The correct option is (b).

According to the scenario, the foreign

currency that original sold at the market is

shown below:

= (Forward rate to Jan 15 - Spot rate) x

payment made

= ($0.00089 - $0.00082 ) x 20 million

= $0.00007 x 20,000,000

= $1,400 premium

hence, the foreign currency that originally

sold at the market is $1,400 premium

Therefore the correct option is (b).

A foreign currency is the currency used by a foreign country as its recognized form of monetary exchange. This particular currency is the only form of exchange that the applicable government allows to be used for buying and selling within its borders.

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