On December 1,20X5,Gillard Ltd.sold goods to International Traders Ltd. ,a company located in Switzerland for 500,000 Swiss francs (CHF).At the date of sale,the spot rate was CHF1 = $1.0329.On the same date,Gillard acquired a 90-day forward contract at a rate of CHF1 = $1.0315.On March 1,20X6,Gillard receives full payment from International Traders and delivered the Swiss francs in execution of the forward contract.The spot rate at March 1,20X6 was CHF1 = $1.0287.What is the net exchange gain (loss)on the forward contract?

Question

Quizplus · Accepted Answer

First, we need to calculate the amount received in USD when Gillard sold goods to International Traders Ltd.:
500,000 CHF x $1.0329 = $516,450

Then, we need to calculate the amount that Gillard would have received in USD if they had not entered into a forward contract and just used the spot rate on March 1, 20X6:
500,000 CHF x $1.0287 = $514,350

The difference between these two amounts is the net exchange gain (loss) on the forward contract:
$516,450 - $514,350 = $2,100 loss

However, since Gillard acquired the forward contract at a rate of CHF1 = $1.0315, they actually saved money compared to what they would have received without the contract:
500,000 CHF x $1.0315 = $515,750

Therefore, the net gain (loss) on the forward contract is:
$515,750 - $516,450 = $700 loss

So, the correct answer is B)$(700).