Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2013, with payment of 10 million Korean won to be received on January 15, 2014. The following exchange rates applied: $\begin{array}{lrr}&&\text { Forward }\
&\text { Spot}&\text { Rate }\
\text { Date }&\text { Rate}&\text { to Jan. } 15\
\hline\text { December 16, 2013 } & \$ .00092 & \text { \$. } 00098 \
\text { December 31, 2013 } & .00090 & .00093 \
\text { January 15, 2014 } & .00095 & .00095
\end{array}$ Assuming a forward contract was entered into, how would the forward contract be reflected on Car's December 31, 2013 balance sheet?

Question

Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2013, with payment of 10 million Korean won to be received on January 15, 2014. The following exchange rates applied: $\begin{array}{lrr}&&\text { Forward }\
&\text { Spot}&\text {  Rate }\
\text { Date }&\text { Rate}&\text { to Jan. } 15\
\hline\text { December 16, 2013 } & \$ .00092 & \text { \$. } 00098 \
\text { December 31, 2013 } & .00090 & .00093 \
\text { January 15, 2014 } & .00095 & .00095
\end{array}$ Assuming a forward contract was entered into, how would the forward contract be reflected on Car's December 31, 2013 balance sheet?

Quizplus · Accepted Answer

The forward contract is an asset because it gives Car Corp. the right to buy Korean won at a fixed rate in the future. This right has value because it protects Car Corp. from the risk that the Korean won will appreciate against the U.S. dollar before January 15, 2014.

Car Corp (A U Assuming a Forward Contract Was Entered Into, How Would the Customer