Primo Inc, a U

question 95

Multiple Choice

Primo Inc., a U.S. company, ordered parts costing 100,000 rupee from a foreign supplier on July 7 when the spot rate was $0.025 per rupee. A one-month forward contract was signed on that date to purchase 100,000 rupee at a rate of $0.027. The forward contract is properly designated as a fair value hedge of the 100,000 rupee firm commitment. On August 7, when the parts are received, the spot rate is $0.028. At what amount should the payable be carried on Primo's books?

• A) $2,000.
• B) $2,100.
• C) $2,500.
• D) $2,700.
• E) $2,800.

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Definitions:

Foreign Exchange

The swapping of one type of currency for a different one or changing one type of currency into another.

Arbitrageurs

Market participants who buy and sell assets to profit from price discrepancies in different markets.

Foreign Exchange Markets

Financial markets where currencies are traded, facilitating international trade and investment by enabling currency conversion.

Exchange Rates

The price of one country's currency expressed in another country's currency, affecting international trade and economics.