As of december 31 year one the forward exchange rate to be, Ask an Expert

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On November 1, Year One, the Arnold Company signs a forward exchange contract to receive one million Japanese yen on February 1, Year Two, for $10,000 based on the three-month forward exchange rate at that time of $1 for 100 Japanese yen (1,000,000 x 1/100 or $10,000). This contract was acquired because company officials felt the value of the Japanese yen was going to increase in relation to the value of the US dollar. The investment was made to speculate on this expected change. On November 1, the spot (current) exchange rate is $1 for 94 Japanese yen but that rate change, by December 31, to $1 for 96 Japanese yen. As of December 31, Year One, the forward exchange rate to be paid one month in the future is $1 for 103 Japanese yen. What is the overall impact to be recognized on net income at the end of Year One?

A Zero

B $71 loss

C $221 gain

D $292 loss

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M941863

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