Assume that on January 15, 2021 Singh agrees to purchase US$100,000 for C$117,000 for delivery on January 15, 2022. The exchange rate at Singh's December 31 year-end is US$1 = C$1.20 and the January 15, 2022 exchange rate is US$1 = C$1.19. What is the foreign exchange gain or loss recognized at January 15, 2022?
A)$1,000 loss.
B)$1,000 gain.
C)$2,000 loss.
D)$2,000 gain.

Question

Quizplus · Accepted Answer

The contract rate was US$1 = C$1.17, but the rate on January 15, 2022, was US$1 = C$1.19. Singh effectively paid C$117,000 for US$100,000, but the market rate would have required C$119,000, resulting in a C$2,000 gain. However, since the question asks for the gain or loss in US dollars, the gain is US$1,000 (C$2,000 / C$1.19).

Assume That on January 15, 2021 Singh Agrees to Purchase