Use the Following Information to Answer the Question(s) Below

question 23

Multiple Choice

Use the following information to answer the question(s) below.

On December 1, 2014, Thomas Company, a U.S. corporation, purchases inventory from a vendor in Italy for 400,000 euros. Payment is due in 90 days. To hedge the transaction, Thomas signs a forward contract to buy 400,000 euros in 90 days at $1.3670. Thomas uses a discount rate of 6% (present value factor for 30 days = .9950; 60 days = .9901; 90 days = .9851) . Assume the forward contract will be settled net and this is a cash flow hedge. Currency exchange rates are shown below:


-What is the fair value of the forward contract at December 31,2014?

• A)$400.00 liability
• B)$400.00 asset
• C)$396.04 liability
• D)$396.04 asset

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Definitions:

William H. Seward

An American politician who served as the Secretary of State under Presidents Abraham Lincoln and Andrew Johnson, known for his staunch anti-slavery stance and for negotiating the purchase of Alaska from Russia in 1867.

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Senate

The upper chamber of the United States Congress, which, along with the House of Representatives, makes up the legislature of the USA.

Secretary of State

A senior official responsible for foreign affairs in the U.S., overseeing diplomatic missions and representing the country in international matters.