[Vanessachy]

The following information pertains to Flint Co.’s sale of 10,000 foreign currency units under a forward contract dated November 1, 20X1, for delivery on January 31, 20X2:

11/01/X1 12/31/X1

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Spot rates $0.80 $0.83

30-day future rates 0.79 0.82

90-day future rates 0.78 0.81

Flint entered into the forward contract in order to speculate in the foreign currency. In Flint’s income statement for the year ended December 31, 20X1, what amount of loss should be reported from this forward contract?

A. $400

B. $300

C. $200

D. $0

I need help for this question, the answer is 400,(0.82-0.78)*10000, but why use those two rates?

Far 10/26/2015, 64, 1/4/2016, 82
Reg 7/10/2015, 60, 2/27/2016, 86
Aud, 5/9/2016, 74 (ouch), 7/26/2016, I cannot wait to take this test again
Bec, 6/10/2016, 70,9/8 retake

[monikernc]

the 90 day forward rate on 11/1 was .78 – 90 days from 11/1 to 1/31
on 12/31 you still have 30 days till 1/31 so you use the 30 day forward rate of .82
i could be wordier but i am tired.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
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[marqzho]

11/01/X1—–90Days——>January 31, 20X2

12/31/X1—–30Days——>January 31, 20X2

So on 11/01/X1, you enter into a forward contract to sell currency on January 31, 20X2, you will look at 90 Days future rate, ie. 0.78. Meaning you are selling $10000 foreign currency for $7800.

On 12/31/X1, balance sheet date, you will look at the 30 Days future rate, ie. 0.83. Then you find out you will be only receiving $7800, but they are expected to be worth $8200

So you recognize a loss of $8200-7800 = 400

REG 90
FAR 95
AUD 98
BEC 84

[Vanessachy]

Is this questions about foreign currency? I think I misunderstood the question

Far 10/26/2015, 64, 1/4/2016, 82
Reg 7/10/2015, 60, 2/27/2016, 86
Aud, 5/9/2016, 74 (ouch), 7/26/2016, I cannot wait to take this test again
Bec, 6/10/2016, 70,9/8 retake

[mystical guy]

@Vanessachy

The question is about hedging, rather than foreign currency translation. A foreign currency question gives you exchange rates and asks you to consider loss/profit from foreign currency translation, or the appropriate currency to show the financials of the parent…etc. The loss/profit, occurs from the changes in exchange rates and the question usually is asking about the loss/profit recognized from paying AP or collecting AR.

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