Establishment of a forward exchange contract

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Reference no: EM13146935

Belsen purchased inventory on December 1, 2008. Payment of 200,000 stickles was to be made in sixty days. Also on December 1, Belsen signed a contract to purchase € 200,000 in sixty days. The spot rate was $1= €2.80 and the 60 day forward rate was $1= €2.60. On December 31, the spot rate was $1= €2.90 and the 30 day forward rate was $1 = € 2.62. Assume an annual interest rate of 12% and a fair value hedge. The present value for one month at 12% is .9901.

In the journal entry to record the establishment of a forward exchange contract, at what amount should the Forward Contract account be recorded on December 1?

• $71,428.57

• $76,923.08

• $5,549.51

• $587.20

• $0 since there is no cost, there is no value for the contract at this date

Reference no: EM13146935

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