What is the fair value of the forward contract at march

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On December 1, 2014, Thomas Company, a U.S. corporation, purchases inventory from a vendor in Italy for 400,000 euros. Payment is due in 90 days. To hedge the transaction, Thomas signs a forward contract to buy 400,000 euros in 90 days at $1.3670. Thomas uses a discount rate of 6% (present value factor for 30 days = .9950; 60 days = .9901; 90 days = .9851). Assume the forward contract will be settled net and this is a cash flow hedge.

Currency exchange rates are shown below:

Date                                      Spot Rate       Forward Rate to March 1
December 1, 2014               $1.3694                 $1.3670
December 31, 2014             $1.3642                 $1.3660
January 30, 2015                $1.3670                 $1.3690
March 1, 2015                    $1.3712                 $1.3712

Problem 1: What is the fair value of the forward contract at March 1?

Reference no: EM132776541

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