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Virtuosobg
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Joined: 18 Jan 2011
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Posted: 20 Feb 2011 at 17:03 \| IP Logged

Greetings,

Here is the question.

On November 2, Year 1, Platt Co. entered into a 90-day futures contract to purchase 50,000 Swiss francs when the contract quote was $.70. The purchase was for speculation in price movement. The following exchange rates existed during the contract period.

                          30-day futures          ;    Spot Rate
Nov 2, Year 1          .62                               .63
Dec 31, Year 1        .65                               .64
Jan 30, Year 2         .65                               .68

What amount should Platt report as foreign currency exchange loss in its income statement for the year ended Dec 31, Year 1.

A. 2500
B. 3000
C. 3500
D. 4000

The correct answer is A. You calculate the loss using the futures rate at Dec 31st. My question is whether you would use the spot rate when the futures contract finally matures after 90 days on Jan 30 Year 2?

Thanks

BG

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Virtusoobg

Aznanalyst83
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Posted: 21 Feb 2011 at 14:23 \| IP Logged

IRRC, when it mature, you should be using the spot rate on that date...vs what was on Dec. 31 of year 1.

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jiejenn
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Posted: 21 Feb 2011 at 15:41 \| IP Logged

You record Gain/Loss at year end (B/S Date), and the rate on your B/S date become your new foreign exchange basis. So at Jan 30, Year 2, when you calculate gain/loss, you will be using Dec 31, exchange rate which is .65 to calculate gain/loss not .62

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