On February 1, Durham Company Writes a Forward Contract to Sell

question 43

Essay

On February 1, Durham Company writes a forward contract to sell Rubright Company 3,000,000 yen at a specific, fixed price of $0.00875 per yen with delivery in 60 days. The spot rate at the end of the 60 days is $0.00913 per yen. The following is the forward rates information throughout the 60-day term.
Assume the discount rate is 7%.
Required:
a.Compute the gain or loss for Rubright Company over the life of the contract.
b.Assume the contract is settled at the end of the 60 days, prepare the journal entries to account for this contract on Rubright's books.

---

Definitions:

Market Price

The current cost at which you can buy or sell an asset or service.

Bushels

A bushel is a unit of volume that is used in the United States for measuring quantities of agricultural produce, such as grains or fruits.

Perfect Hedge

A hedging strategy that completely eliminates the risk associated with a particular position or portfolio.

Interest Rates

The fee, shown as a percentage of the principal amount, that a lender requires from a borrower for the utilization of resources.