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timofeeve [1]
2 years ago
9

1. A U.S. company anticipates that it will sell merchandise for €100,000 at the end of August and receive payment for it at the

end of October. On May 1, when the spot rate is $1.20 and the forward rate for delivery on October 31 is $1.21, the company enters a forward contract to sell €100,000 on October 31. The forward contract qualifies as a cash flow hedge of the forecasted sale. The company sells the merchandise on August 30, when the spot rate is $1.232 and the forward rate for October 31 delivery is $1.23 and receives payment of €100,000 and closes the forward contract on October 31, when the spot rate is $1.24. The company has a December 31 year-end. What is the net exchange gain/loss for the year related to this transaction? A. $200 net gain B. $1,800 net loss C. $200 net loss D. $-0-
Business
1 answer:
mamaluj [8]2 years ago
6 0

Answer:

C. $200 net loss

Explanation:

The net loss or gain is calculated on hedging to determine whether the hedge has been beneficial for the company or not. Hedging is a process to transfer exchange rate movement risk. This is usually suitable for the companies who have receipts or payments in foreign currencies.

The hedging gain loss can be calculated as:

Forward rate at the time of contract - spot rate today

$1.21 - 1.232 = 0.0232

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Here, we are decide the best option between making the part or buying the part.

a.                  Make or Buy Analysis

Particulars                              Make amount    Buy amount

Direct Materials                            $4.50

Direct Labor                                $1.00  

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Cost to buy                            <u>              </u>            <u>$4.70</u>

Cost per unit                              <u>$5.70    </u>          <u>$4.70</u>

Cost Difference = $5.70 - $4.70

Cost Difference = $1.00

Therefore, the cost difference of making amount over buying amount is $1.00.

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Therefore, the buying of the part is the best decision.

See similar solution about Analysis

<em>brainly.com/question/23287319</em>

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Answer:

See the explanation section

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