Happ, Inc.agreed to purchase merchandise from a British vendor on November 30, 2018.The goods will arrive on January 31, 2019 and payment of 100,000 British pounds is due at that time.On November 30, 2018, Happ signed an agreement with a foreign exchange broker to buy 100,000 British pounds on January 31, 2019.Exchange rates to purchase 1 British pound are as follows: ?

$$\begin{array} { l r r r }
& \text { Nov. } 30,2018 & \text { Dec. } 31,2018 & \text { Jan. } 31,2019 \
\text { Spot } & \$ 1.65 & \$ 1.62 & \$ 1.59 \
30 \text { day } & \$ 1.64 & \$ 1.59 & \$ 1.60 \
60 \text { day } & \$ 1.63 & \$ 1.56 & \$ 1.58
\end{array}$$ Because of this commitment hedge, Happ, Inc.will record the merchandise at what value when it arrives in January?

Question

Happ, Inc.agreed to purchase merchandise from a British vendor on November 30, 2018.The goods will arrive on January 31, 2019 and payment of 100,000 British pounds is due at that time.On November 30, 2018, Happ signed an agreement with a foreign exchange broker to buy 100,000 British pounds on January 31, 2019.Exchange rates to purchase 1 British pound are as follows: ?

$$\begin{array} { l r r r } 
& \text { Nov. } 30,2018 & \text { Dec. } 31,2018 & \text { Jan. } 31,2019 \
\text { Spot } & \$ 1.65 & \$ 1.62 & \$ 1.59 \
30 \text { day } & \$ 1.64 & \$ 1.59 & \$ 1.60 \
60 \text { day } & \$ 1.63 & \$ 1.56 & \$ 1.58
\end{array}$$ Because of this commitment hedge, Happ, Inc.will record the merchandise at what value when it arrives in January?

Quizplus · Accepted Answer

Happ, Inc. locked in the exchange rate on November 30, 2018, for 60 days at $1.63 per British pound. Since the payment of 100,000 British pounds is due when the goods arrive on January 31, 2019, and the agreement was to buy pounds at the 60-day rate available on November 30, the merchandise will be recorded at 100,000 pounds * $1.63/pound = $163,000.

Happ, IncAgreed to Purchase Merchandise from a British Vendor on November