Foreign Currency - Activity 2 Foreign currency Spot rates December 1, Year 1 December 31, Year 1 January 15, Year

2 February 15, Year 2 Forward Rates December 1, Year 1 December 31, Year 1 January 15, Year 2 December 1, Year 1 Due from broker Due to broker 1.26 1.28 1.31 1.23 1.25 1.29 1.33 250,000

Important dates: Jan 15 - Inventory is received Dec 1 - Jan 15 = Cash flow he Jan 15 - Feb 15 = Fair value h

315,000 315,000

250,000*1.26

Since we are purchasing inve

To record the forward contract at the forward contract rate. December 31, Year 1 Due from broker Foreign-exchange gain - OCI

5,000 5,000

250,000*(1.28-1.26)

To update the due from broker account to the forward rate at year end. January 15, Year 2 Due from broker OCI

7,500 7,500

250,000(1.31-1.26)

To update the due to broker account to the forward rate on January 15. Inventory 322,500 250,000*1.29 Accounts payable 322,500 To record the purchase of inventory at the spot rate on the transaction date. OCI 12,500 Inventory To adjust the purchase price of the inventory February 15, Year 2 Due from broker Foreign-exchange gain

12,500

5,000 5,000

To update the due from broker account to the spot rate on the settlement date. Foreign-exchange loss 10,000 Accounts payable 10,000 To update accounts payable to the spot rate on the settlement date. Due to broker Cash 315,000 315,000

To record the payment of Canadian cash to the broker. Cash - FCU 332,500 Due to broker 332,500 To record the receipt of the foreign cash from the broker. Accounts payable 332,500 Cash - FCU 332,500 The foreign cash received from the broker is used to pay the payable.

Important dates: Jan 15 - Inventory is received Dec 1 - Jan 15 = Cash flow hedge Jan 15 - Feb 15 = Fair value hedge

Since we are purchasing inventory, we would like to lock-in the payable