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

question 50

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.
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Assume the discount rate is 7%.
$$\begin{array} { l r r } \text { Remaining Term of Contract } & \text { Forward Rate } & \text { Notional Amount } \\\hline 60 \text { days } & \$ 0.00875 & 3,000,000 \\30 \text { days } & 0.00891 & 3,000,000 \\0 \text { days } & 0.00913 & 3,000,000\end{array}$$ ?
Required:
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a.Compute the gain or loss for Rubright Company over the life of the contract.?
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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.

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Definitions:

Capital Requirement

The minimum amount of financial resources that a firm needs to conduct its business activities, often regulated in industries like banking.

Investment Banks

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