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M8.1 - Part 1-ForEX Transaction

The document discusses four problems involving foreign currency transactions: 1) An importing transaction where a company is exposed to currency risk without hedging. 2) An exporting transaction where a company is exposed to currency risk without hedging. 3) A speculation transaction where a company enters a forward contract to buy currency. 4) A speculation transaction where a company enters a forward contract to sell currency. Each problem provides relevant exchange rates and asks multiple choice questions to calculate foreign exchange gains and losses.

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165 views3 pages

M8.1 - Part 1-ForEX Transaction

The document discusses four problems involving foreign currency transactions: 1) An importing transaction where a company is exposed to currency risk without hedging. 2) An exporting transaction where a company is exposed to currency risk without hedging. 3) A speculation transaction where a company enters a forward contract to buy currency. 4) A speculation transaction where a company enters a forward contract to sell currency. Each problem provides relevant exchange rates and asks multiple choice questions to calculate foreign exchange gains and losses.

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RJS
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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IYSB Quick Notes Online

FOREIGN CURRENCY TRANSACTION


(IMPORTING TRANSACTION – EXPOSED LIABILITY POSITION without Hedging)

Problem A: On September 1, 2021, JLN Company a Philippine Based Company ordered 1000 units of inventory
from a U.S. Corporation for $25,000. The inventory was shipped and invoiced to JLN firm on December 1, 2021 to be
paid on February 1, 2022. JLN’s fiscal year end is December 31. Assume that JLN did not engage in any form of
hedging activity.

The following are the spot rates for U.S. Dollars at various times are as follow:
Buying Spot Rates Selling Spot Rates
September 1, 2021 P 38.90 40.10
December 1, 2021 40.00 40.30
December 31, 2021 40.60 40.85
February 1, 2022 40.45 40.65

3. How much is the ForEx gain or (loss) on December 31, 2021?


A. (6,250)
B. (13,750)
C. (15,000)
D. (18,750)

4. How much is the outstanding accounts payable as of December 31, 2021?


A. 1,015,000
B. 1,016,250
C. 1,021,250
D. 1,035,000

5. How much is the ForEx gain or (Loss) on February 1, 2022?


A. (5,000)
B. 5,000
C. 3,750
D. (3,750)

6. How much is the Net ForEx gain or (loss)?


A. 11,250
B. (11,250)
C. 8,750
D. (8,750)

(EXPORTING TRANSACTION – EXPOSED ASSET POSITION without Hedging)

Problem B: On November 1, 2021, BMK Company a Philippine Based Company received an order of 1,500 units of
inventory from a HK Company a U.S. based Company for $50,000. The inventory was shipped by BMK Company and
billed HK firm on December 1, 2021. BMK Company received the customer remittance in full on March 2, 2022. BMK’s
fiscal year end is December 31. Assume that BMK did not engage in any form of hedging activity.

The following are the spot rates for U.S. Dollars at various times are as follow:
Buying Spot Rates Selling Spot Rates
November 1, 2021 P 39.90 40.10
December 1, 2021 40.00 40.20
December 31, 2021 40.60 40.85
March 2, 2022 40.40 40.70

7. How much is the ForEx gain or (loss) on December 31, 2021?


a. 37,500
b. 35,000
c. 30,000
d. 32,500

AFAR QUICKNOTES 2023 REVIEWER BY ATTY. IVAN YANNICK S. BAGAYAO, CPA MBA 1
IYSB Quick Notes Online
8. How much is the outstanding accounts receivable as of December 31, 2021?
a. 2,030,000
b. 2,042,500
c. 2,060,000
d. 2,075,000

9. How much is the ForEx gain or (Loss) on March 2, 2022?


a. 10,000
b. (10,000)
c. 7,500
d. (7,500)

10. How much is the Net ForEx gain or loss?


a. (20,000)
b. 25,000
c. 20,000
d. (25,000)

(SPECULATION–TO BUY CURRENCY)

Problem C: On November 1, 2021, BELLE Corporation entered into forward exchange contracts to purchase U.S. $
20,000 in 90 days for delivery on February 1, 2022. The fiscal year-end for BELLE Corporation is December 31. The
Exchange rates available on various dates are as follows:

1-Nov-21 31-Dec-21 1-Feb-22


SPOT RATE P 40.00 P 40.25 P 40.40
30 DAY Forward Rate 40.10 40.35 40.50
60 DAY Forward Rate 40.15 40.40 40.70
90 DAY Forward Rate 40.20 40.45 40.65

11. How much is the ForEx gain or (loss) on December 31, 2021?
a. (3,000)
b. 3,000
c. 4,000
d. (4,000)

12. How much is the foreign currency receivable as of December 31, 2021?
a. 804,000
b. 805,000
c. 807,000
d. 808,000

13. How much is the peso payable balance as of December 31, 2021?
a. 804,000
b. 805,000
c. 807,000
d. 808,000

14. How much is the ForEx gain or Loss on February 1, 2022?


a. (1,000)
b. 2,000
c. 1,000
d. (2,000)

15. How much is the Net ForEx gain or (loss)?


a. (1,000)
b. 2,000
c. 1,000
d. (2,000)

AFAR QUICKNOTES 2023 REVIEWER BY ATTY. IVAN YANNICK S. BAGAYAO, CPA MBA 2
IYSB Quick Notes Online
(SPECULATION–TO SELL CURRENCY)

Problem D: On December 1, 2021, 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, 2021 for P40.25. The fiscal
year-end for BELLE Corporation is December 31. The Exchange rates available on various dates are as follows:
1-Dec-21 31-Dec-21 1-Mar-22
SPOT RATE P 40.00 P 40.25 P 40.35
30 DAY Forward Rate 40.10 40.35 40.50
60 DAY Forward Rate 40.15 40.40 40.70
90 DAY Forward Rate 40.25 40.45 40.65
120 DAY Forward Rate 40.30 40.50 40.70

16. How much is the ForEx gain or loss on December 31, 2021?
a. (1,500)
b. 1,500
c. 1,000
d. (1,000)

17. How much is the ForEx gain or Loss on March 1, 2022?


a. 0
b. (500)
c. 500
d. (1,000)

18. How much is the Peso Receivable from XD on March 1, 2022 prior to collection?
a. 402,500
b. 403,000
c. 403,500
d. 404,000

19. How much is the Foreign Currency Payable on March 1, 2022 prior to settlement?
a. 402,500
b. 403,000
c. 403,500
d. 404,000

20. How much is the Net ForEx gain or (loss)?


a. (1,500)
b. 1,500
c. 1,000
d. (1,000)

“That in all persons and things, God may be glorified!”

“Therefore I tell you, whatever you ask for through prayers believe that you have
received it and it will be yours” – Mark 11:24

AFAR QUICKNOTES 2023 REVIEWER BY ATTY. IVAN YANNICK S. BAGAYAO, CPA MBA 3

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