Exam 10: Foreign Currency Transactions

Larson, Inc. sold merchandise for 600,000 FC to a foreign vendor on November 30, 20X5. Payment in foreign currency is due January 31, 20X6. On the same day, Larson signed an agreement with a foreign exchange broker to sell 600,000 FC on January 31, 20X6. Exchange rates to purchase 1 FC are as follows: What will be the recorded amount of the Forward Contract on November 30, 20X5?

A transaction involving foreign currency will most likely result in gains and losses to the reporting entity if the

A bank dealing in foreign currency tells you that the foreign currency will buy you $.80 US dollars. The bank has given you

Bulldog Enterprise, a U.S. firm, agreed on February 1, 20X1, to buy gears from a Mexican firm for 75,000 pesos. Delivery is scheduled for May 1, 20X1, with payment due at that time. On February 1, 20X1, Bulldog also acquired a forward contract to buy 75,000 pesos on May 1, 20X1. (The gears represent inventory to the U.S. firm.) Bulldog's year end is March 31. Required: Prepare the journal entries necessary for Bulldog Enterprise to record this activity. Assume that the following exchange rates existed: Discount rate 15%

On 6/1/X2, an American firm purchased inventory costing 100,000 Canadian Dollars from a Canadian firm to be paid for on 8/1/X2. Also on 6/1/X2, the American firm acquired an option for $1,500 to purchase 100,000 Canadian dollars for delivery on 8/1/X2. The strike price for the option was $0.685. The exchange rates were as follows: The entry to settle the option will include:

Which is true of foreign currency forward contracts and foreign currency options?

Discuss the differences in using an option to hedge a foreign currency risk rather than a forward contract.