Question

On June 1, CamCo received a signed agreement to sell inventory for ¥500,000. The sale would take place in 90 days. CamCo immediately signed a 90-day forward contract to sell the yen as soon as they are received. The spot rate on June 1 was ¥1 =$.004167, and the 90-day forward rate was ¥1 = $.00427. At what amount would CamCo record the Forward Contract on June 1?

Answer 1

Answer:

0

Explanation:

The spot rate shows the current value of the foreign currency (yen) and the forward rate shows the expected future price of the foreign currency (yen). Forward contracts are not recorded at the date of the sale, the contract should be recorded in 90 days at $2,135 (= $.00427 x ¥500,000).