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    FOREX Part1

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    misonim.e

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    FOREX Part1

    Uploaded by

    misonim.e
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    FOREX_Part1

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    14 views1 page

    FOREX Part1

    Uploaded by

    misonim.e

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    © All Rights Reserved
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    of 1

    Problem I (FOREIGN CURRENCY TRANSACTION-IMPORTATION)

    On November 1, 2016, KAPUSO ENTERPRISES whose functional currency is Philippine Peso,


    purchases an equipment from a UAE exporter. The company will pay 150,000 dirhams at this date
    when the spot rate is P12.3263 per dirham. As is customary in the industry, the foreign seller does
    not require immediate payment and allows KAPUSO 90 days to pay for its purchase. The following
    are the relevant spot rates at pertinent dates: 11/30/2016-P12.3288; 12/31/2016- P12.3300;
    1/30/2017- P12.3416; 2/28/2017-P12.3425. Assume the payment of KAPUSO was made at due date.
    Prepare journal entries in the books of KAPUSO for the above foreign currency transaction.

    PROBLEM II (FOREIGN CURRENCY TRANSACTION- EXPORTATION)

    On December 10, 2016 KAPAMILYA Corporation sold merchandise to a Danish importer invoiced at
    100,000 kroners to be settled on 2/28/2017. The following exchange rates are relevant:

    12/10/2016 P8.3098
    12/31/2016 P8.3365
    2/28/2017 P8.2615
    Assume the foreign currency transaction was settled by the foreign buyer at due date. Prepare
    Journal Entries in the books of KAPAMILYA for the above transaction.

    Problem III

    BICOLANDIA COMPANY purchased merchandise from a foreign vendor for FC 100,000. The
    merchandise is received on November 1, 2016 payment is due on January 31, 2017. Also, on
    November 1, 2016 the company entered into a 90-day forward contract for the purchase of FC
    100,000 for delivery on January 31, 2017 as a hedge of the foreign currency transaction. Relevant
    exchange rates for the foreign currency follow:

    11/01/2016 12/31/2016 1/31/2017


    Spot rate P .55 P .56 P .55
    30-day forward .56 .58 .57
    60-day forward .56 .59 .58
    90-day forward .57 .58 .59
    Prepare the journal entries of the BICOLANDIA COMPANY for the above transactions.

    Problem IV

    ILOCANDIA CORPORATION, a Filipino Company enters into a forward exchange contract on


    October 1, 2016 to hedge a foreign currency risk in US dollars. The contract is for sale of FC 100,000
    to the international bank for delivery on March 31, 2017. The company anticipates the dollar will
    weaken against the peso. Relevant exchange rates for the US dollars are as follows:

    10/01/2016 12/31/2016 03/31/2017


    Spot rate P46.35 P46.00 P45.60
    30-day contract 46.25 45.5 46.00
    90-day contract 46.28 45.80 45.60
    180-day contract 46.30 43.60 45.00

    Problem V (FV HEDGE OF A FOREIGN CURRENCY DENOMINATED COMMITMENT)

    On October 1, 2016 Pilipino Corporation entered into a firm commitment with a Japanese Firm to
    acquire a machine with delivery and passage of title on March 31, 2017 at a price of 1,000,000 yen.
    On the same date, to hedge against risk the company entered into a 180-day forward contract with
    bank of PI for 1,000,000 yen. The relevant exchange rates are as follows:

    1/1/16 12/31/16 3/31/17


    Spot rate P.40 P.41 P.38
    Forward rate .425 .41 .38
    Prepare all the journal entries on the books of the Pilipino Company for the above transactions.

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