If an Australian Company Enters a Forward Exchange Contract to Buy

question 13

Multiple Choice

If an Australian company enters a forward exchange contract to buy US$15 000, then which of the following applies?

• A) The company's contractual obligation (at the forward rate) and contractual right (at the spot rate) are settled on a net basis.
• B) The company has a contractual obligation to deliver foreign currency at the settlement date and that obligation is realised at the spot rate.
• C) The company has a contractual right to receive US$15 000 at the settlement date and that right is an asset fixed in A$ at the forward rate.
• D) The company's forward contract will act as a hedge against a recognised asset.

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Definitions:

Just-In-Time System

A supply chain management system designed to decrease waste and increase efficiency by receiving goods only as they are needed in the production process.

Same Day Air

A transportation service ensuring parcels or freight are delivered via air transport within the same day, emphasizing speed and efficiency.

Next-Day Air

A shipping service that ensures delivery of parcels or documents on the day after they are dispatched.

Environmental Factors

Elements of nature and society that can affect an organization's performance, including climate, regulatory policies, and socio-economic conditions.