FOREX PROBLEM

FOREX PROBLEM

On April 4, 2010, OBAMA Co. Products delivered to a Pakistan firm inventory it sold for 100,000 rupees. Payment is due to be received on August 2, 2010. The company’s fiscal year ends June 30. Also on April 4, OBAMA Products entered into a foreign exchange forward to sell 100,000 rupees on August 2, 2010.

	4 / 4/ 10	6 / 30 / 10	8 / 2 / 10
Spot rate (rupees)	P.80	P.84	P.82
Forward rate (rupees)……	.77	.83	.82

1. The June 30, 2010 profit and loss statement, foreign exchange gain or loss due to sale of inventory amounted to:

A. P6,000 gain                  B. P6,000 loss             C. P4,000 gain              D. P4,000 loss

2. The June 30, 2010 profit and loss statement, foreign exchange gain or loss due to hedging instrument:

A. P4,000 loss                   B. P4,000 gain            C. P6,000 loss             D. P6,000 gain

3. The June 30, 2010 net foreign exchange gain/loss in the profit and loss statement amounted to:        

     A. P -0-           B. P3,000 net gain      C. P2,000 net gain              D. P2,000 net gain

4. What amount will OBAMA disclose as the fair value of the forward contract on June       30,2010?

A. P0                     B. P4,000             C. P6,000               D. P 80,000

5. On settlement date, August 2, 2010 foreign exchange gain or loss due to forward contract/hedging instrument:

A. P1,000 gain                  B. P1,000 loss             C. P2,000 gain            D. P5,000 loss

6. What amount will OBAMA’ s fair value of the forward contract on August 2, 2010?

A. P1,000                     B. P5,000         C. P82, 000          D. P83,000