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

question 47

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:
$$\begin{array} { | l | r | r | } \hline & \text { Spat Rates } & \text { For ward Rates } \\\hline \begin{array} { l } \text { Novernber } 1,2019 \\\text { (Trarsaction date) }\end{array} & \text { US } \$ 1 = \text { CDN } \$ 1.365 & \\\hline \begin{array} { l } \text { December } 1,2019 \text { (Hedged } \\\text { date) }\end{array} & \text { US } \$ 1 = \text { CDN\$1.3450 } & \text { US\$1 = CDN\$1.3250 } \\\hline \begin{array} { l } \text { December } 31,2019 \text { (Year- } \\\text { end) }\end{array} & \text { CDN } \$ 1.36 & \text { CDN } \$ 1.34 \\\hline \begin{array} { l } \text { March } 1,2020 \text { (Settlement } \\\text { date) }\end{array} & \text { US } \$ 1 = \text { CDN } \$ 1.368 & \text { US } \$ 1 = \text { CDN\$1.368. } \\\hline\end{array}$$ *for contracts expiring on March 1, 2020
What is the amount of the exchange gain or loss from the recognition of the hedge discount recognized during 2019?

• A) A loss of CDN$4,500.
• B) A loss of CDN$3,000.
• C) A gain of $ CDN4,500.
• D) Nil.

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Definitions:

Pharmaceutical Company

A pharmaceutical company is a business that focuses on the research, development, manufacturing, and marketing of drugs and medications.

Usury

The lending of money at an exorbitant or unlawful rate of interest.

Legal Maximum

The highest limit set by law for rates, prices, or fees. In various contexts, it may cap interest rates, rent increases, or other charges.

Procedural Unconscionability

Unconscionability that derives from the process of making a contract.