RXN's Year-End Is on December 31 *For Contracts Expiring on March 1, 2020
What Is the When

question 22

Multiple Choice

RXN's year-end is on December 31. On November 1, 2019 when the U.S. dollar was worth CDN$1.365, RXN sold merchandise to an American client for US$300,000. Full payment of this invoice was expected by March 1, 2020. On December 1, the spot rate was CDN$1.3450, and the three-month forward rate was CDN$1.3250. In order to minimize its Foreign Exchange risk and exposure, RXN entered into a forward contract with its bank on December 1, 2019 to deliver US$300,000 in three months' time. The spot rate at year-end was CDN$1.36 and the forward rate from December 31, 2019 to March 1, 2020 was CDN$1.34. On March 1, 2020, RXN received the US$300,000 from its client and settled its contract with the bank. The forward contract was to be accounted for as a fair value hedge of the US dollar receivable.
Significant dates and exchange rates pertaining to this transaction are as follows:
$\begin{array}{|l|r|r|}\hline&Spot~ Rates &Forward ~Rates\\\hline \text { November 1, } 2019 \text { (Transaction date) } &\mathrm{US} \$ 1=\mathrm{CDN} \$ 1.365\\\hline \text { December } 1,2019 \text { (Hedged date) } & \text { US } \$ 1=\text { CDN } \$ 1.3450 & \text { US\$1=CDN\$1.3250 } \\\hline \text { December 31,2019 (Year-end) } & \text { CDN } \$ 1.36 & \text { CDN } \$ 1.34 \\\hline \text { March 1, 2020 (Settlement date) } & \mathrm{US} \$ 1=\text { CDN } \$ 1.368 & \text { US\$1 =CDN\$1.368. }\\\hline\end{array}$ *for contracts expiring on March 1, 2020
What is the amount of RXN's foreign exchange gain or loss prior to its hedge?

• A) A CDN$6,000 loss.
• B) A CDN$6,000 gain.
• C) A CDN$4,500 gain.
• D) Nil

---

Definitions:

Developmental Perspective

Viewing behavior, relationships, and processes through the lens of growth and change over time.

Training

The process of enhancing the skills, knowledge, and competencies of employees through planned learning activities to improve job performance.

Personal Development

The ongoing process of self-improvement and acquiring new skills or knowledge to enhance one's life and career.

360 Degree Assessment

a feedback process where an employee receives confidential, anonymous feedback from those who work around them, including peers, superiors, and subordinates.