On July 1,2014,Stagger Company sold some limited edition art prints to Wakaramas Company for ¥38,500,000 to be paid on September 30 of that year.The current exchange rate on July 1,2014,was ¥110=$1,so the total payment at the current exchange rate would be equal to $350,000.Stagger entered into a forward contract with a large bank to guarantee the number of dollars to be received.According to the terms of the contract,if ¥38,500,000 is worth less than $350,000,the bank will pay Stagger the difference in cash.Likewise,if ¥38,500,000 is worth more than $350,000,Stagger must pay the bank the difference in cash.
-Using the information above and assuming the exchange rate on September 30 is ¥115=$1,what amount will Stagger pay to,or receive from,the bank (rounded to the nearest dollar)?

Question

Quizplus · Accepted Answer

To calculate the amount Stagger will pay or receive from the bank, we need to determine the value of ¥38,500,000 on September 30 based on the forward contract.

On July 1, 2014, ¥38,500,000 = $350,000 
On September 30, 2014, ¥115 = $1

Therefore, on September 30, 2014, ¥38,500,000 = $334,782.61

Since this amount is less than the guaranteed amount of $350,000 in the forward contract, the bank will pay Stagger the difference.

$350,000 - $334,782.61 = $15,217.39

Rounding to the nearest dollar, Stagger will receive $15,217 from the bank.

Therefore, the best choice is B) $15,217 receipt.

On July 1,2014,Stagger Company Sold Some Limited Edition Art Prints