Question 1:
1 A sale for 200,000 francs was made by a French corporation to a Canadian company when the exchange rate was F4.0 = Can$1.00. The rate changed to F4.5 = Can$ 1.00 on the date payment was due. The transaction is denominated in francs.
Required:
(1) Did the seller appearance any transaction exposure? If the answer is yes, evaluate the amount?
(2) Did the consumer have any transaction gain or loss? If the answer is yes, was it a profit or loss, and what was the amount?
Question 2: U.S.-based Anderson Company connects in a number of foreign currency transactions that have resulted in the subsequent balances:
Cash: British pounds 800,000
Cash: Swiss francs 500,000
Accounts receivable: Swiss francs 3,200,000
Accounts receivable: British pounds 1,050,000
Accounts payable: Swiss francs 700,000
Accounts payable: Swedish krona 800,000
Notes payable: Swedish krona 200,000
Management forecasts the subsequent exchange rate changes for the near future:
- The Swiss franc may weaken against the dollar by 5 percent.
- The British pound may strengthen relative to the dollar by 10 percent.
- The Swedish krona can strengthen against the dollar by 15 percent.
Required:
Prepare a strategy for Anderson's foreign currency. The strategy should maximize Anderson's profit or minimize its loss, whatever the case.
Question 3: Holt Corporation's subsidiary in Poland has fixed assets valued at 10,000,000 zloty (zl). Of these, one-quarter was obtain four years ago when the exchange rate was z13.50 = $1.00. The balance was obtain two years ago when the exchange rate was z13.80 = $1.00. Fixed assets are being depreciated using the straight-line technique with an estimated useful life of 10 years and considering no salvage value. The subsequent exchange rates are for the existing year:
Year-end rate: zl4.20 = $1 .00
Weighted average rate: zl4.00 = $1 .00
Required:
(1) Conforming to SFAS No. 52, evaluate the Polish subsidiary's depreciation expense for the existing year considering the zloty is the functional currency.
(2) Repeat requirement (1) considering the U.S. dollar is the functional currency.