Assume that Lewis International sells running shoes to a British importer on June 1 and that the sale is denominated at £75,000 and will be collected on July 15. Assume the treatment of FASB Statement 52 and that no forward contract is entered into. Also assume that Lewis closes its books at the end of each month. The following are the relevant exchange rates.
$ \begin{array}{ll}\text { Spot rate on June 1 } & \$ 1.6200 \ \text { Forward rate for July } & \ 15 \text { delivery } & \$ 1.6000 \ \text { Spot rate on June 30 } & \$ 1.6100 \ \text { Spot rate on July 15 } & \$ 1.5950\end{array} $
-How much cash will Lewis receive on July 15?
A) $120,750
B) $120,000
C) $119,625
D) $121,500

Question

Assume that Lewis International sells running shoes to a British importer on June 1 and that the sale is denominated at £75,000 and will be collected on July 15. Assume the treatment of FASB Statement 52 and that no forward contract is entered into. Also assume that Lewis closes its books at the end of each month. The following are the relevant exchange rates. 
$ \begin{array}{ll}\text { Spot rate on June 1 } & \$ 1.6200 \ \text { Forward rate for July } & \ 15 \text { delivery } & \$ 1.6000 \ \text { Spot rate on June 30 } & \$ 1.6100 \ \text { Spot rate on July 15 } & \$ 1.5950\end{array} $
-How much cash will Lewis receive on July 15?
A) $120,750
B) $120,000
C) $119,625
D) $121,500

Quizplus · Accepted Answer

The sale is denominated in British pounds and will be collected on July 15, therefore we need to calculate the amount in US dollars at the spot rate as of July 15. The spot rate on July 15 is 1.5950. Therefore, the amount collected in US dollars will be £75,000 / 1.5950 = $119,625.

Assume That Lewis International Sells Running Shoes to a British