On November 1 . 2014, Balloon Company sold some limited edition art prints to Sitake Company for ¥47,850,000 to be paid on January 1 . 2015 . The current exchange rate on November 1 . 2014, was ¥110=$1, so the total payment at the current exchange rate would be equal to $435,000 . Balloon entered into a forward contract with a large bank to guarantee the number of dollars to be received
According to the terms of the contract, if ¥47,850,000 is worth less than $435,000, the bank will pay Balloon the difference in cash. Likewise, if ¥47,850,000 is worth more than $435,000, Balloon must pay the bank the difference in cash. Assuming the exchange rate on December 31 . 2014 is ¥115=$1, what amount will Balloon disclose as the fair value of the forward contract on December 31 . 2014 (answers rounded to the nearest dollar)?
a. $0
b. $18,913
c. $20,714
d. $416,087
B
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