On 6/1/X2, an American firm purchased a inventory costing 100,000 Canadian Dollars from a Canadian firm to be paid for on 8/1/X2. Also on 6/1/X2, the American firm entered into a forward contract to purchase 100,000 Canadian dollars for delivery on 8/1/X2. The exchange rates were as follows: The American firm's fiscal year end is 6/30/X2. The changes in the value of the forward contract should be discounted at 8%. What is the value of the Forward Contract on 6/30/X2?

Question

On 6/1/X2, an American firm purchased a inventory costing 100,000 Canadian Dollars from a Canadian firm to be paid for on 8/1/X2. Also on 6/1/X2, the American firm entered into a forward contract to purchase 100,000 Canadian dollars for delivery on 8/1/X2. The exchange rates were as follows:  The American firm's fiscal year end is 6/30/X2. The changes in the value of the forward contract should be discounted at 8%. What is the value of the Forward Contract on 6/30/X2?

Quizplus · Accepted Answer

Original forward value
100,000 F1F1F1S1F1F1F10 .74 = 74,000
Current (6/30) forward value
100,000 F1F1F1S1F1F1F10 .75 = 75,000
Change - gain (loss) in forward value
1,000
PV of change, discounted at 8%, n
 11eb11de_92da_d9d9_ad38_ad184df5974c_TB2014_00 1
1,000 - (1,000 F1F1F1S1F1F1F10 [.08 ÷ 12]) = 993

On 6/1/X2, an American Firm Purchased a Inventory Costing 100,000