1 (B)

For payment, the currency used is Euros. X Trading is the company that used foreign exchange.
Whereas, Y company has been using euros as its currency so no forex transaction in its case. Y Company receiv

X Trading Y
(Peso) (Euros)
Date of purchase (1200000/12.5) 96,000.00 1,200,000.00
Date of payment (1200000/16) 75,000.00 1,200,000.00
Forex Gain / (Loss) 21,000.00 -

The exchange rate used herein is indirect. To get the direct exchange rate:

Date of purchase (see formula) 0.08

Date of payment 0.06
Decline in rates (Gain on the part of a buyer) 0.02
x Price of the product purchased 1,200,000.00
Gail (Loss) on forex transaction 21,000.00

2 (A)

Direct exchange rate:

Spot rate
Celica Motors (seller) 180,000.00 68.45
Down payment 54,000.00 67.48
Balance 126,000.00 68.63
Gain (Loss) on forex transaction

It was a loss because at the time of purchase, the peso value was 12,321,000.
The peso value received by the seller for down payment and balance is only 12,291,300.
Thus, there is a forex loss of P29,700.

To a seller, any decline in currency value of a receivable is a loss, because he would be receiving less.
To a buyer, any decline in currency value of a payable is a gain, because he would be paying less.
Vice versa for an increase in currency value.

3 (A)

Levin is a buyer of goods, and a seller of foreign currency under a forward contract. Hedging is setting aside a fu
It is called a hedged transaction because, no matter what the spot rates are, the buyer (or seller) who made a h

FC Receivable FC Payable
400400 x 0.55 220,220.00
400400 x 0.50 200,200.00

As a buyer of goods (hedged transaction), he would be recording his payable using current rates. So, on Decem
As a seller of forex (hedging instrument), he would be recording the value of the forward contract at its value u
4 (A) Correction on the problem: The FV of option on 6/20/2013 is 13,975.
1/1 3/31
Fair value of put option 9,800.00 11,400.00
- Intrinsic value 2,015.00 3,705.00
Time value 7,785.00 7,695.00

The intrinsic value may be computed as (Strike price minus spot rate) x foreign currency.
On March 31, the gain would be 3705 minus 2015 = 1690. (The intrinsic value increased, so it's a gain.)

5 D

There's that phrase "anticipated purchase". The purchase hasn't happened yet although they already acquired
Since the purchase hasn't occurred yet, no merchandise would be recorded.

6 B

The focus was the forward contract, which was entered into on 12/12, the forward rate was 0.60.
The report period being asked was 12/31, the forward rate was 0.63.
Profit or loss is computed as (0.60 - 0.63) x 225000 = 6750.
The transaction is a purchase, so the hedging instrument was a receivable. The value increased, so it was a gain

7 D

A - Forward contract receivable is (46 x 93750) = 4312500.

B - It was a net forex gain, not loss.
C - Zero, it was only the transaction date. No changes yet on the forex.

Payable - @ spot rate

Oct. 1 43.00
Dec. 31 47.00
Jan. 30 50.00

The rate used in the forward contract on Jan. 30 (settlement dat

Just keep in mind that it's the spot rate to be used in there.

8 A

1/3 12/31
Fair value of put option 16,500.00 34,000.00
- Intrinsic value 14,500.00 29,000.00
Time value 2,000.00 5,000.00

At settlement date, the FV and instrinsic value is actually equal.

Change in time value on 12/31 - from 2000 to 5000, that's a gain of 3000.
Change in intrinsic value on 1/31 - from 29000 to 58000, that's a gain of 29000.

9 A Receivable - @ spot rate

 Nov. 1 51.30
Dec. 31 52.60
Jan. 31 51.80

The rate to be used in the futures contract is 90-day futures on N

10 D

Forex gain or loss on firm commitment on Dec. 31 (46.70 minus 44.30) x 15750 = 37800

S Company is a seller, from that transaction it will have a receivable. The value of forex using the forward rates

11 B

Forex gain or loss on the forward contract on Feb 28 (62.05 minus 62.35) x 625000 = 187500

SBC company is the buyer, it has a payable. The forward contract would then be a receivable. As such, the decr

Payable- @ spot rate

Dec. 1 61.55
Dec. 31 62.85
Feb. 28 62.05

12 B (Split Accounting); C (Non-split accounting)

Dec. 1 Dec. 31
Fair value of put option 6,000.00 7,500.00
- Intrinsic value - 3,600.00
Time value 6,000.00 3,900.00

Loss on time value - from 3900 to 0. Loss

Sales (1300 x 176) 228,800.00

Cost (1200 x 165) 198,000.00
(100 x 172) 17,200.00
Gross Profit 13,600.00
Loss on forex 3,900.00
Net Income 9,700.00

13 C

Hedged item (Purchase at market price)

share price on 10/1 115.00
share price on 4/17 95.00
20.00
1,750.00
Gain (decrease in the amount to be paid) 35,000.00
 Hedging instrument
Oct. 1 Dec. 31
Fair value of put option 24,500.00 36,050.00

Forex gain of 10500 on fair value of option, increase from 24500 to 35000.

Total gain (35000 + 10500) = 45500

14 A
Assets
2012 - Loss 6,000,000.00
2013 - Gain 15,093,750.00 Liabilities
Cumulative adjustment 9,093,750.00 Common stock
Retained earnings
Dividends

JOINT ARRANGEMENTS
1 C Contract price 144
C GX expenses 48
JQ expenses 60
Gross profit 36

GX share in reve 72
GX expenses 48
Gross profit 24

2 B Revenue 60,000,000.00
A Operating exp 6,000,000.00
A Organization exp 600,000.00
53,400,000.00
Divided by 2
Share of each 26,700,000.00

RX contribution 60,000,000.00
Share in profit 26,700,000.00
Total interest 86,700,000.00

Revenue 72,000,000.00
Opex 21,000,000.00
Net Income 51,000,000.00

Share of each 25,500,000.00

SV contribution 60,000,000.00
Share in 2012 pro 26,700,000.00
Share in 2013 pro 25,500,000.00
Total interest 112,200,000.00
t used foreign exchange.
transaction in its case. Y Company received the payment in euros.

Please note that the exchange rate is for problem use only.
Real exchange rates are not taken into consideration.

12,321,000.00
3,643,920.00
8,647,380.00
(29,700.00)

s only 12,291,300.

use he would be receiving less.

e he would be paying less.

ard contract. Hedging is setting aside a fund to a bank or financial institution that is willing to absorb any gain or loss resulting from a h
es are, the buyer (or seller) who made a hedged contract, he would be paying (or receiving) the stated amount in the hedge contract.

ayable using current rates. So, on December 31, his payable is 400400 x 0.50. You use the forward rates because it was done through a
lue of the forward contract at its value upon incepcion (December 1). So, it would be 400,400 x 0.55.
 6/20
13,975.00
13,975.00
-

x foreign currency.
c value increased, so it's a gain.)

ened yet although they already acquired a hedging instrument.

the forward rate was 0.60.

able. The value increased, so it was a gain.

e - @ spot rate Forward Contract - Receivable

44.00
Loss 4 46.00 Gain 2 Net loss 2
Loss 3 50.00 Gain 4 Net gain 1 (on settlement date) x 93750

ward contract on Jan. 30 (settlement date) is actually the spot rate. It just so happens that the spot rate and the forward rate are both 5
's the spot rate to be used in there.

1/31
58,000.00
58,000.00
(0.00)

able - @ spot rate Futures contract - payable

 50.50
Gain 1.3 52.40 Loss 1.9 Net loss 0.6
Loss 0.8 51.80 Gain 0.6 Net loss 0.2 x 315000 = 63000

he futures contract is 90-day futures on Nov. 1, since there are 90 days before settlement date; 30-day futures on Dec. 31, since there a

x 15750 = 37800

he value of forex using the forward rates increased, so it's a gain.

35) x 625000 = 187500

d then be a receivable. As such, the decrease in rates would mean a loss.

e- @ spot rate Futures contract - receivable

60.75
62.35
62.05 Loss 0.3

Mar. 31
8,400.00
8,400.00
-

3,900.00
Mar. 3 Apr. 17
38,710.00 35,000.00

2012 2013
361,781,250.00 407,906,250.00

240,656,250.00 256,500,000.00
77,625,000.00 77,625,000.00
52,500,000.00 64,687,500.00
3,000,000.00
(6,000,000.00) 9,093,750.00

million
million
million
million

million
million
million
 in or loss resulting from a hedged transaction.
unt in the hedge contract.

ause it was done through a forward contract.

the forward rate are both 50.
es on Dec. 31, since there are 30 days before settlement, and spot rate on settlement date.