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accounts data bank

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Question;PROBLEM;1.;Describe the risks and uncertainty a U.S. company;faces when purchasing goods from a foreign corporation and settling the;transaction in the foreign currency.;2.;On September 15, 20X2, Wall Company, a U.S. firm;purchased a piece of equipment from a foreign firm for 500,000 FCs. Payment for;the equipment was to be made in FCs on January 15, 20X3. The spot rates on;selected dates were as follows;Date;Spot;Rate;9/15/X2................................;1;FC =;$0.30;12/31/X2...............................;1;FC =;$0.33;1/15/X3................................;1;FC =;$0.315;Required;a.;Assuming that the US Corp. has a December 31 year;end, prepare the necessary journal entries to account for the series of;transactions involving the purchase.;b. Prepare all;the necessary journal entries assuming that the US Corp. will be paying for the;equipment in U.S. dollars.;3.;On November 1, 20X1, DEMO Corp., a U.S. firm, sold;merchandise to a foreign firm for 60,000 FCs. DEMO will be paid on January 31;20X2, in FCs. The spot rates on selected dates were as follows;Date;Spot;Rate;November;1, 20X1................................;1;FC =;$0.50;December;31, 20X1...............................;1;FC =;$0.55;January;31, 20X2................................;1;FC =;$0.53;Required;Assuming;that DEMO has a December 31 year end, prepare the necessary journal entries to;account for the series of transactions involving the sale.;4.;A U.S. Corp. purchased a computer from a French firm;on July 1, 20X5, when a Euro cost $0.25. The U.S. firm will be required to pay;the French manufacturer 75,000 Euros on August 1, 20X5, when the Euro costs;$0.23.;Required;Make the necessary journal entries for the U.S. firm on July 1;and August 1.;10-13;Chapter 10;5.;On January 1, 20X1, a U.S. firm bought a truck from;a foreign firm for 10,000 FCs, to be paid on March 1 in FCs. The spot rate was;1 FC = $1.25 on January 1 and 1 FC = $1.265 on March 1. To protect themselves;from exchange rate changes, the U.S. firm entered into a forward exchange;contract on January 1 to buy FCs on March 1 for $1.28.;Required;Make all the necessary journal entries to record the;transactions for the U.S. firm on January 1 and March 1.;10-14;Chapter 10;6.;Explain how the risks differ for holders and writers;of foreign exchange options. Additionally, describe the difference between;American and European options. Finally, how is the intrinsic value of an option;calculated?;7.;For a hedge on an exposed position, describe the;process of valuing the forward contract as the fiscal period end date.

 

Paper#44394 | Written in 18-Jul-2015

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