Robert Company sold inventory to an Australian company for 50,000 Australian dollars on April 1, 20X0 with settlement to be in 60 days. On the same date, Robert entered into a 60-day forward contract to sell 50,000 Australian dollars at a forward rate of $1.164 in order to manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were as follows:

April 1 1 Australian dollar = $1.167

May 31 1 Australian dollar = $1.16

Based on the preceding information, had Robert not used the forward exchange contract, what would have been the foreign currency transaction gain or loss for the year?

a. Gain of $200

b. Gain of $150

c. Loss of $350

d. Loss of $200

Question

Business

Joy Porter

21 August, 10:54

Robert Company sold inventory to an Australian company for 50,000 Australian dollars on April 1, 20X0 with settlement to be in 60 days. On the same date, Robert entered into a 60-day forward contract to sell 50,000 Australian dollars at a forward rate of $1.164 in order to manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were as follows:

April 1 1 Australian dollar = $1.167

May 31 1 Australian dollar = $1.16

Based on the preceding information, had Robert not used the forward exchange contract, what would have been the foreign currency transaction gain or loss for the year?

a. Gain of $200

b. Gain of $150

c. Loss of $350

d. Loss of $200

+5

Answers (1)

Know the Answer?

Victor Gates · Answer 1

c. Loss of $350

Explanation:

Sales in terms of AUD 50,000.00

Spot Rate on Apr 01 per AUD 1.1670

Total Payment that is to be received on April 1 = 50,000*1.167 58,350.000

The Spot Rate on May 31 per AUD 1.1600

Total Payment to be received on May 31 = 50,000*1.16 = 58,000.0000

Therefore,

Loss Suffered due to payment received after 60 Days in $ = 58,350 - 58,000 350.00