On July 1, 2019, North Inc *For Contracts Expiring on November 15, 2019
What Is the Merchandise

question 51

Multiple Choice

On July 1, 2019, North Inc., based in Alberta, ordered merchandise from an American supplier for US$600,000. Delivery was scheduled for the month of October, with payment to be made in full on November 15, 2019. Once the order was placed, North entered into a forward contract with its bank to purchase US$600,000 on the settlement date at the forward rate of CDN$1.3625. The forward contract was designated as a cash flow hedge of the cash flow required to settle with the American supplier.
The merchandise was received on October 1, 2019, when the spot rate was US$1 = CDN$1.3575. On October 31, the company's year-end, the spot rate was $1.3690. North purchased the U.S. dollars to pay its supplier on November 15, 2019 when the spot rate was CDN$1.3725. The forward rate to November 15, 2019, was CDN$1.365 on October 1 and CDN$1.37 on October 31.
A summary of the significant dates and exchange rates pertaining to this transaction are as follows:
$\begin{array}{|l|r|r|} \hline& \text { Spot Rates } & \text { Forward Rates } \\\hline \begin{array}{l}\text { July } 1,2019 \text { (Order date and } \\\text { hedge date) }\end{array} & \mathrm{US} \$ 1=\mathrm{CDN} \$ 1.3445 & \mathrm{US} \$ 1=\mathrm{CDN} \$ 1.3625 \\\hline \text { October } 1,2019 \text { (Delivery date) } & \mathrm{US} \$ 1=\mathrm{CDN} \$ 1.3575 & \mathrm{US} \$ 1=\mathrm{CDN} \$ 1.365 \\\hline \text { October 31,2019(Year-end) } & \text { CDN\$1.369 } & \text { CDN\$1.37 } \\\hline \begin{array}{l}\text { November } 15,2019 \text { (Settlement } \\\text { date) }\end{array} & \text { US\$1=CDN\$1.3725 } & \text { US\$1=CDN\$1.3725 }\\\hline\end{array}$ *for contracts expiring on November 15, 2019
What is the amount of North's recognized exchange gain or loss arising from this transaction included in its financial statements as at October 31, 2019?

• A) CDN$3,900 loss
• B) CDN$3,900 gain
• C) CDN$3,000 gain
• D) Nil

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Definitions:

Fab Fragments

Regions of an antibody molecule that bind to antigens, consisting of one constant and one variable domain of each of the heavy and the light chain.

Antibody-Mediated Immunity

A type of specific immune response in which B cells differentiate into plasma cells and produce antibodies that bind with foreign antigens, leading to the destruction of pathogens. Compare with cell-mediated immunity.

B Cells

A type of white blood cell that plays a crucial role in the immune system by producing antibodies to fight off infections.

Plasma Cells

White blood cells that produce antibodies, playing a crucial role in the body's immune response to infection.