How much (in Canadian Dollars) will RXN expect to receive from the bank when its forward contract is settled?
RXN's year-end is on December 31. On November 1, 2017 when the U.S. dollar was worth CDN$1.165, RXN sold merchandise to an American client for US$300,000. Full payment of this invoice was expected by March 1, 2018. On December 1, the spot rate was CDN$1.1450 and the three-month forward rate was CDN$1.1250.
In order to minimize its Foreign Exchange risk and exposure, RXN entered into a contract with its bank on December 1, 2017 to deliver US$300,000 in three months' time. The spot rate at year-end was CDN$1.16 and the forward rate from December 31, 2017 to March 1, 2018 was CDN$1.14. On March 1, 2018, RXN received
the US$300,000 from its client and settled its contract with the bank. The forward contract was to be accounted for as a fair value hedge of the US dollar receivable.
Significant dates and exchange rates pertaining to this transaction are as follows:
A) $337,500. B) $347,500. C) $349,500. D) $343,500.
A) $337,500.
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