Chat with us, powered by LiveChat Module 4 Foreign Currency Transaction – Hedging | acewriters
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1.
On December 1, 2009, a U.S.-based company entered into a
three-month forward contract to purchase 1 million Mexican pesos on March 1,
2010.
The following are the
purchase rates for US dollar per peso

Date

Spot
Rate

Forward Rate (March,
2010)

December 1,
2009

$0.088

$0.084

December 31,
2009

$0.080

$0.074

March 1,
2010

$0.076

The company’s borrowing
rate is 12 percent. The present value factor for two months at an annual
interest rate of 12 percent (1 percent per month) is 0.9803.

How will the U.S.
company report the forward contract on its December 31, 2009, balance sheet?

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