Amazing Corporation, a U The Discount Factor Corresponding to the Company's Incremental Borrowing Rate

question 38

Multiple Choice

Amazing Corporation, a U.S. enterprise, sold product to a customer in Wales on October 1, 20x1 for £100,000 with payment required on April 1, 20x2. Relevant exchange rates are:
$\begin{array}{lll} & \text { Spot rate } & \text { Forward rate (to } 4 / 1 / \mathrm{x} 2) \\\text { October } 1,20 \times 1 & \$ 1.87 & \$ 1.85 \\\text { December } 31,20 \times 1 & \$ 1.85 & \$ 1.84 \\\text { April 1.20x2 } & \$ 1.90 &\end{array}$
The discount factor corresponding to the company's incremental borrowing rate for 6 months is 0.95.
-Assuming that Amazing Corporation does not hedge this transaction, what is the amount of exchange gain or loss that it should show on its December 31, 20x1 income statement?

• A)Loss $1,000
• B)Loss $2,000
• C)Gain $1,000
• D)Gain $1,900

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Definitions:

Fixed Costs

Expenses that remain constant regardless of the amount of goods produced or sold, including lease payments, wage expenses, and insurance fees.

Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life.

Fixed Costs

Business expenses that remain constant regardless of changes in production volume, such as rent, salaries, and loan repayments.

Variable Cost

Costs that vary in direct proportion to changes in the level of production or sales.