RXN's Year-End Is on December 31 *For Contracts Expiring on March 1, 2020
How Much (In

question 34

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
How much (in Canadian Dollars) will RXN expect to receive from the bank when its forward contract is settled?

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

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