On June 1, Cagle Co. received a signed agreement to sell inventory for ¥650,000. The sale would take place in 90 days. Cagle immediately signed a 90-day forward contract to sell the yen as soon as they are received. The spot rate on June 1 was ¥1 = $0.003986, and the 90-day forward rate was ¥1 = $0.004021. At what amount would Cagle record the Forward Contract on June 1?
A) $2,613.65.
B) $0.
C) $2,590.90.
D) $2,275.00.
E) $1,993.00.

Question

Quizplus · Accepted Answer

Forward contracts are recorded at fair value, which is typically zero at inception, as the contract is entered into at the forward rate available in the market.