Advanced Accounting test bank graded A+

Advanced Accounting test bank graded A+ The foreign exchange rate for the immediate delivery of currencies exchanged is called the: A) forward rate. B) historical rate. C) spot rate. D) market rate. E) swap rate. - ANSWERSpot Rate On November 1 of the current year, Patriot Inc. purchased a container of electrical components from its supplier in Japan. Patriot agreed to pay 15,000,000 ¥ in 90 days. The exchange rate on November 1 was $1 = 120 ¥. Patriot decided to hedge the transaction and entered into a 90 day forward contract to purchase yen at a cost of $1 = 125 ¥. The 60 day forward rate that would take Patriot to the December 31 fiscal year end was $1 = 127.50 ¥. On December 31, the spot rate was $1 = 118 ¥, and the 30-day forward rate was $1 = 122 ¥. What is the balance in the forward contract account on November 1 of the current year? (For purposes of this exercise, use a present value factor of 1.) A) $0 B) $5,000 debit C) $5,000 credit D) $2,353 debit E) $7,353 credit - ANSWERa) $0 The value of a forward contract on the day it is taken out is always $0. On November 1 of the current year, Patriot Inc. purchased a container of electrical components from its supplier in Japan. Patriot agreed to pay 15,000,000 ¥ in 90 days. The exchange rate on November 1 was $1 = 120 ¥. Patriot decided to hedge the transaction and entered into a 90 day forward contract to purchase yen at a cost of $1 = 125 ¥. The 60 day forward rate that would take Patriot to the December 31 fiscal year end was $1 = 127.50 ¥. On December 31, the spot rate was $1 = 118 ¥, and the 30-day forward rate was $1 = 122 ¥. What is the balance in the forward contract account on December 31 of the current year? (For purposes of this exercise, use a present value factor of 1.) A) $7,119 debit B) $7,119 credit C) $2,951 debit D) $2,951 credit E) $120,000 debit - ANSWERC) $2,951 Credit Compare the forward contract rate to the currently available rate that will take us to the due date. a. Cost of a current 30 Day forward Contract (15,000,000/122) $122,951 b. Cost of Yen at the contracted rate (15,000,000/125) $120,000 Value of the forward contract a-b= $2,951 This is a debit balance because we are better off having hedged the transaction on November 1 of the current year than we would be if we had waited until December 31 to hedge the transaction. NOD Corp. (a U.S.-based company) sold parts to a Hong Kong customer on December 15 with payment of 100,000 Hong Kong dollars to be received in thirty days on January 15. The following exchange rates apply: Spot Forward Rate 1/15 12/15 $0.15 $0.16 12/31 $0.16 $0.17 1/15 $0.17 $0.18 Assuming no forward contract was entered into, how much foreign exchange gain or loss should NOD report on its December 31 income statement with regard to this transaction? (For purposes of this exercise, use a present value factor of 1.) A) no gain or loss B) $1,000 loss C) $3,000 loss D) $1,000 gain E) $3,000 gain - ANSWERD) $1,00