(Answered) Question - p ltd sells goods to a company based in the us

Accounting

Question - P Ltd sells goods to a company based in the US on 1 April 2017. The invoice is denominated in the US dollars, and is $US750 000. The invoice will be due on 31 May 2017. The amount is guaranteed by a local bank so the payment is certain. The sport rate of the date of transaction is $A1 = $US0.75.

P Ltd is concerned that the A$ will fluctuate and thus decides to enter a forward-rate agreement with the bank. According to the agreement, the bank agrees to buy $US 750 000 from Exports Ltd on 31 May 2017 at an agreed forward rate of $A1 = $US0.80.

Required:

1. Explain how P Ltd has reduced the risk of $A fluctuation by entering the forward-rate agreement.

2. How much will P Ltd receive from the sale of US$750 000 to the bank, in Australian dollars?

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