Problem 4: (Speculation – To Buy Currency)
On November 1, 2016, BELLE Corporation entered into forward exchange contracts to purchase U.S.$ 20,000 in 90
days for delivery on February 1, 2017. The fiscal year-end for BELLE Corporation is December 31. The Exchange
rates available on various dates are as follows:
SPOT RATE
30 -DAY Forward Rate
60 -DAY Forward Rate
90 -DAY Forward Rate
1-Nov-16
P40.00
40.10
40.15
40.20
31-Dec -16
P 40.25
40.35
40.40
40.45
1.
How much is the ForEx gain or (loss) on December 31, 2016?
A. (3,000)
C. 4,000
B. 3,000
D. (4,000)
2.
How much is the foreign currency receivable as of December 31, 2016?
A. 804,000
C. 807,000
B. 805,000
D. 808,000
3.
How much is the peso payable balance as of December 31, 2016?
A. 804,000
C. 807,000
B. 805,000
D. 808,000
4.
How much is the ForEx gain or loss on February 1, 2017?
A. (1,000)
C. 1,000
B. 2,000
D. (2,000)
5.
How much is the Net ForEx gain or (loss)?
A.
(1,000)
B.
4,000
C.
D.
1-Feb-17
P 40.40
40.50
40.70
40.65
1,000
(4,000)
Problem 5: (Speculation – To Sell Currency)
On December 1, 2016, PEPPER Corporation entered into forward exchange contracts for speculative purposes in
anticipation for a gain to sell U.S. $ 10,000 in 90 days for delivery on March 1, 2017 for P40.25. The fiscal year end
for PEPPER Corporation is December 31. The Exchange rates available on various dates are as follows:
SPOT RATE
30-DAY Forward Rate
60-DAY Forward Rate
90-DAY Forward Rate
120-DAY Forward Rate
1-Dec-16
P40.00
40.10
40.15
40.25
40.30
1.
How much is the ForEx gain or loss on December 31, 2016?
A. (1,500)
C. 1,000
B. 1,500
D. (1,000)
2.
How much is the ForEx gain or loss on March 1, 2017?
A. 0
C.
B. (500)
D.
31-Dec -16
P40.25
40.35
40.40
40.45
40.50
500
(1,000)
3.
How much is the Peso Receivable from XD on March 1, 2017 prior to collection?
C. 403,500
A. 402,500
B. 403,000
D. 404,000
4.
How much is the Foreign currency Payable on March 1, 2017 prior to settlement?
C. 403,500
A. 402,500
B. 403,000
D. 404,000
How much is the Net ForEx gain or (loss)?
A. (1,500)
C. 1,000
D. (1,000)
B. 1,500
5.
1-Mar -17
P40.35
40.50
40.70
40.65
40.70
Hedging Instrument
Problem 6: (Forward Contracts – Hedging an Exposed Liability)
OCDC Enterprise purchases inventory from a foreign supplier on September 1, 2016 with payment due on December
31, 2016. The transaction will be settled in 1,000,000 foreign currency units (FCUs). Management of OCDC
immediately enters into a forward contract to hedge this transaction. The relevant exchange rates and forward
contract fair values are as follows:
Date
Spot Rate
Nov. 1 Forward Rate
Forward Contract Fair Value
Sept 1
P1.120
P1.124
P0
Nov. 1
1.129
1.128
4,000
Dec. 31
1.140
1.140
16,000
1.
What is the amount of exchange gain or (loss) recognized with respect to the accounts payable account on
November 1, 2016?
A. (4,000)
C. 4,000
D. (9,000)
B. 9,000
2.
What is the amount of exchange gain or (loss) recognized with respect to Forward Contract on November
1, 2016?
C. 4,000
A. (4,000)
B. 9,000
D. (9,000)
3.
What is the amount of exchange gain or (loss) recognized with respect to Forward Contract on December
31, 2016?
A. 4,000
C. 12,000
B. 9,000
D. 18,000
4.
How much is the net gain or (loss) on November 1, 2016?
A. 1,000
C. 5,000
D. (1,000)
B. (5,000)
5.
How much is the net gain or loss on December 31, 2016?
A. 1,000
C. 5,000
B. (5,000)
D. (1,000)
6.
How much is the outstanding accounts payable as of November 1, 2016?
A. 1,120,000
C. 1,128,000
B. 1,124,000
D. 1,129,000
7.
How much is the outstanding peso-payable as of November 1, 2016?
A. 1,120,000
C. 1,128,000
D. 1,129,000
B. 1,124,000
8.
How much is the outstanding FC-receivable as of November 1, 2016?
C. 1,128,000
A. 1,120,000
B. 1,124,000
D. 1,129,000
Problem 7: (Forward Contract – Hedging an Exposed Asset)
On November 1, 20x6, APIC Corporation sold merchandise to Allan Corporation on November 1, 20x6 for U.S.
$50,000. Payment will be received on February 1, 20x7. APIC Corporation entered into forward exchange contracts
to hedge the transaction on November 1, 20x6. The fiscal year-end for APIC Corporation is December 31. The
exchange rates on various dates are as follows:
November 1, 20x6
December 31, 20x6
February 1, 20x7
Spot rate
P40.00
P40.25
P40.50
30-day forward rate
40.10
40.35
40.55
60-day forward rate
40,20
40.40
40.65
90-day forward rate
40.30
40.45
40.60
1.
How much is the ForEx gain or (loss) on December 31, 20x6 with respect to accounts receivable?
A. 2,500
C. (2,500)
B.
12,500
D.
(12,500)
2.
How much is the ForEx gain or (loss) on December 31, 20x6 with respect to forward contract?
A. 2,500
C. (2,500)
B. 12,500
D. (12,500)
3.
How much is the forward contract fair value as of December 31, 20x6?
A. 2,500
C. (7,500)
B. (2,500)
D. (10,000)
4.
How much is the forward contract fair value as of February 1, 20x7?
A. 2,500
C. (7,500)
D. (10,000)
B. (2,500)
5.
How much is the net ForEx gain or (loss) on February 1, 20x7?
C. 7,500
A. 5,000
B. (5,000)
D. (7,500)
6.
How much is the outstanding accounts receivable as of December 31, 20x6?
C. 2,015,000
A. 2,012,500
B. 2,017,500
D. 2,025,000
7.
How much is the outstanding peso-receivable as of December 31, 20x6?
A. 2,012,500
C. 2,017,500
B. 2,015,000
D. 2,025,000
8.
How much is the Outstanding FC-payable as of December 31, 20x6?
A. 2,012,500
C. 2,017,500
B. 2,015,000
D. 2,025,000
Problem 8: (Forward Contracts – Hedging a Firm Commitment as fair value hedge)
On September 30, 2015, CCC ordered MACHINERY from a Japanese firm. The purchase order is non-cancellable. The
purchase price is 5,000,000 yens with delivery and payment to be on March 31, 2016. On September 30, 2015, CCC
entered into forward contract to buy 5,000,000 yens on March 31, 2016. On March 31, 2016, the MACHINERY was
delivered.
9/30/2015
12/31/2015
3/31/2016
Spot rate
0.38
0.42
0.46
Forward rate
0.39
0.44
1.
The December 31, 2015 profit or (loss), net foreign exchange gain or (loss) (Forward contract and
commitment)?
C. 100,000
A. 0
B. 50,000
D. 250,000
2.
The March 31, 2016 profit or (loss), foreign exchange gain or (loss) (Forward contract)?
A. 0
C. 100,000
B. 50,000
D. (100,000)
3.
The March 31, 2016, foreign exchange gain or (loss) (on firm commitment), to be presented in OCI?
A. 0
C. 100,000
B. 50,000
D. (100,000)
4.
What is the Firm Commitment Account balance as of December 31, 2015?
A. 250,000 Asset
C. 350,000 Asset
D. (350,000) Liability
B. (250,000) Liability
5.
The fair value of the forward contract on December 31, 2015?
A. 0
C. (250,000)
D. (350,000)
B. 250,000
What is the value of the equipment on September 30, 2015?
C. 1,950,000
A. 0
B. 1,900,000
D. 2,300,000
6.
7.
What is the value of the equipment on March 31, 2016?
A. 0
C.
B. 1,900,000
D.
1,950,000
2,300,000
Problem 9: (Forward Contract – Hedging a forecasted transaction as cash flow hedge)
On October 31, 20x5, AAA Corporation ordered equipment from JJJ Firm, a Japanese firm. The purchase is probable
but no binding agreement fixed by the parties. The purchase price is 1,000,000 yens with delivery and payment to
be on January 31, 20x6. On October 31, 20x5, AAA Corporation entered into forward contract to buy 1,000,000
yens on January 31, 20x6. On January 31, 20x6, the equipment was delivered.
10/31/20x5
12/31/20x5
1/31/20x6
Spot rate
P0.35
P0.38
P0.45
30-day forward rate
0.38
0.40
0.41
60-day forward rate
0.40
0.42
0.43
90-day forward rate
0.42
0.44
0.44
1.
How much is the peso payable as of December 31, 20x5?
A. 380,000
C. 420,000
B. 400,000
D. 450,000
2.
The fair value of the forward contract as of October 31, 20x5?
C. 30,000
A. 0
B. (20,000)
D. 50,000
3.
The fair value of the forward contract as of December 31, 20x5?
A. 0
C. 30,000
B. (20,000)
D. 50,000
4.
The fair value of the forward contract as of January 31, 20x6?
C. 30,000
A. 0
B. (20,000)
D. 50,000
5.
The December 31, 20x5, net foreign exchange gain or (loss) (Hedging instrument and item) to be presented
in profit or loss?
C. 20,000
A. 0
B. (20,000)
D. 30,000
6.
The December 31, 20x5, net foreign exchange gain or (loss) (Hedging instrument and item) to be presented
in OCI?
A. 0
C. 30,000
B. (20,000)
D. 50,000
7.
The January 31, 20x6, foreign exchange gain or (loss) (Hedging instrument) to be presented in OCI
(statement of comprehensive income)?
A. 20,000
C. 30,000
D. 50,000
B. (20,000)
8.
The January 31, 20x6, foreign exchange gain or (loss) (Hedge item) to be presented in OCI?
C. (30,000)
A. 20,000
B. (20,000)
D. 50,000
9.
The January 31, 20x6, net foreign exchange gain or (loss) (Hedge instrument and item to be presented in
OCI?
C. (20,000)
A. 0
B. 20,000
D. 50,000
10. What is the value of the equipment on January 31, 20x6?
C. 420,000
A. 380,000
B. 400,000
D. 450,000
10/31
12/31
1/31
0.350
0.380
0.450
0.420
0.400
0.450
Hedged item
Hedging instrument
Forward contract receivable
Forward contract payable
(1,000,000 x .420)
10/31
12/31
420,000
420,000
Forex loss-OCI
Forward contract receivable
20,000
10/31 (1,000,000 x .420)
12/31 (1,000,000 x .400)
Forex loss
420,000
400,000
20,000
20,000
Fwd. C ontract receivable
400,000
Fwd. Contract payable
420,000
Nominal value
20,000
PV factor - cannot determined no discount rate
Fair value
20,000
1/31
Equipment
Forex gain - OC I
Accounts payable
420,000
30,000
Accounts payable
450,000
Forward contract receivable
Forward contract receivable
Forex gain - OC I
450,000 12/31 (1,000,000 x .400)
1/31 (1,000,000 x.450)
Forex gain
450,000
Forward contract payable
Cash
420,000
50,000
50,000
400,000
450,000
50,000
420,000
Option Contract
Problem 10:
(Call Option – Hedge and Exposed Liability)
On December 1, 2017, Philip Company paid P3,000 to purchase a 90-day call option for 500,000 Thailand Baht. The
option’s purpose is to protect an exposed liability of 500,000 baht relating to a purchase of merchandise received on
December 1, 2017 and to be paid on March 1, 2018.
Relevant rates and market values at different dates are as follows:
Spot rate (market price)
Strike price (exercise price)
Fair value of call option
12/01/2017
P1.20
1.20
P3,000
1. What is the Forex Contract value-option as of December 31, 2017
A. P3,000
B. P35,000
C. P40,000
D. P42,000
2. What is the Net forex gain or (loss) as of December 31, 2017
A. P3,000
B. P2,000
C. P1,000
D. (P1,000)
12/31/2017
P1.28
1.20
P42,000
03/01/2018
P1.27
1.20
P35,000
3. Net forex gain or (loss) as of March 1, 2018 (expiration date)
A. P2,000
B. (P2,000)
C. P1,000
D. (P1,000)
4. Option’s time value at December 1, 2017
A. P 0
B. P2,000
C. P3,000
D. P40,000
5. Option’s intrinsic value at December 31, 2017
A. P 0
B. P2,000
C. P3,000
D. P40,000
6. Option’s time value at March 1, 2018
A. P 0
B. P2,000
C. P35,000
D. P40,000
7. Option’s intrinsic value at March 1, 2018
A. P 0
B. P2,000
C. P35,000
D. P40,000