Highland Company sold goods to an Egyptian company for 350,000 Egyptian pounds on December 6,20X3,with payment due on January 15,20X4.The exchange rates were as follows:

-Based on the preceding information,what is Highland's overall net gain or net loss from its foreign currency exposure related to this transaction?

Question

Highland Company sold goods to an Egyptian company for 350,000 Egyptian pounds on December 6,20X3,with payment due on January 15,20X4.The exchange rates were as follows:
 
-Based on the preceding information,what is Highland's overall net gain or net loss from its foreign currency exposure related to this transaction?

Quizplus · Accepted Answer

To calculate Highland's net gain/loss from its foreign currency exposure, we need to compare the amount of Egyptian pounds received on January 15, 20X4, when Highland receives payment, to the amount of Egyptian pounds Highland would have received if it had converted the 350,000 Egyptian pounds to U.S. dollars on December 6, 20X3, when the sale was made.

Converting 350,000 Egyptian pounds to U.S. dollars on December 6, 20X3: 
350,000 EGP * 0.058 USD/EGP = $20,300

Converting $20,300 back to Egyptian pounds on January 15, 20X4: 
$20,300 ÷ 0.062 USD/EGP = 327,419.35 EGP

Highland actually received 350,000 Egyptian pounds, which is more than the 327,419.35 EGP it would have received if it had converted the currency immediately.

To calculate the net gain/loss from its foreign currency exposure, we subtract the amount Highland actually received in Egyptian pounds from the amount it would have received if it had converted the currency immediately:

350,000 EGP - 327,419.35 EGP = 22,580.65 EGP

Converting this to U.S. dollars: 
22,580.65 EGP * 0.062 USD/EGP = $1,401.96

Since Highland gained $1,401.96, the answer is C) $385 gain.

Highland Company Sold Goods to an Egyptian Company for 350,000