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

question 12

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
At what amount (in Canadian Dollars) would the forward contract with the bank be recorded, if recorded gross?

• A) $397,500
• B) $403,500
• C) $402,000
• D) $409,500

---

Definitions:

State of the Union Address

An annual speech delivered by the President of the United States to Congress, summarizing the current condition of the nation and outlining legislative goals.

Howard Stern

An American radio and television personality, known for his long-running radio show which has been a significant and controversial part of American media.

Internal Source

A origin of information, motivation, or inspiration that comes from within an individual or organization, rather than from external influences.

Noise

Any unwanted sound or disturbance that interferes with the communication process, leading to misunderstandings or errors.