Question

Simpson Sign Company based in Frostbite Falls, Minnesota has a 6-month C$100,000 contract to complete sign work in Winnipeg, Manitoba, Canada. The current spot rate is $1.01/C$ and the forward rate is $1.02/C$. Under conditions of equilibrium, management would use ________ today when preparing operating budgets.A) $102,000B) $101,000C) $100,000D) none of the above

Answer 1

Answer:

A) $102,000

Explanation:

The computation of the amount used today for preparing the operating budget is shown below:

= Contract value × forward rate

= $100,000 × $1.02

= $102,000

For computing this, we consider the forward rate and the same is multiplied with the contract value so that the correct amount can come.

All other information which is given is not relevant. Hence, ignored it