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 received 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

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 received 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?

Quizplus · Accepted Answer

Step 1: Calculate the amount received in USD from the sale of goods:
500,000 CHF x $1.0329/CHF = $516,450

Step 2: Calculate the amount to be paid in USD based on the forward contract:
500,000 CHF x $1.0315/CHF = $515,750

Step 3: Calculate the net exchange gain (loss):
Amount received in USD - Amount paid in USD
= $516,450 - $515,750
= $700 loss (since the spot rate at execution was worse than the forward rate)

Therefore, the answer is B) $(700).