On November 2, 20X9, Henry Company Purchased a Machine for 100,000

question 14

Multiple Choice

On November 2, 20X9, Henry Company purchased a machine for 100,000 Swiss francs (CHF) with payment required on March 30, 20X10. To eliminate the risk of foreign exchange losses on this payable, Henry entered into a forward exchange contract on November 3, 20X9, to receive CHF 100,000 at a forward rate of CHF1 = $2 on March 30, 20X10. The spot rate was CHF1 = $1.95 on November 2, 20X9, and CHF1 = $1.97 on December 1, 20X9.
- What is the amount of the premium or discount on the forward exchange contract on December 1, 20X9?

• A)A premium of $3,000
• B)A discount of $3,000
• C)A premium of $5,000
• D)A discount of $5,000

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