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Compute the discount or premium on the forward contract

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Reference no: EM131820949

On November 15, 2014, Solanski Inc. imported 500,000 barrels of oil from an oil company in Venezuela. Solanski agreed to pay 50,000,000 bolivars on January 15, 2015. To ensure that the dollar outlay for the purchase will not fluctuate, the company entered into a forward contract to buy 50,000,000 bolivars on January 15 at the forward rate of $.0269. Direct exchange rates on various dates were:

Spot Rate  Forward Rate 1/15 Delivery

November 15 $.0239 $.0269

December 31 .0224 .0254

January 15 .0291

Solanski Inc. is a calendar-year company.

Required:

Compute the following:

1. The dollars to be paid on January 15, 2015, to acquire the 50,000,000 bolivars from the exchange dealer.

2. The dollars that would have been paid to settle the account payable had Solanski not hedged the purchased contract with the forward contract.

3. The discount or premium on the forward contract.

4. The transaction gain or loss on the exposed liability related to the oil purchase in 2014 and 2015.

5. The transaction gain or loss on the forward contract in 2014 and 2015.

Reference no: EM131820949

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