Problem regarding the exchange rate fluctuations

Reference no: EM13980771

On August 1, Year 1, Zip Ltd. purchased some merchandise from a foreign company for DM450,000. The liability was not due until March 1, Year 2. Zip was quite confident that the exchange rate fluctuations were not a problem and took no action to hedge the liability. On November 1, Year 1, Zip looked at the exchange rates and decided that they had better hedge the liability with a 120-day forward contract. Assume a December 31 year-end, assume all months have 30 days, and assume hedge accounting is not adopted.

Reference no: EM13980771

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