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RXN's year-end is on December 31.On November 1,2014 when the U.S.dollar was worth $1.165 CDN,RXN sold merchandise to an American client for $300,000.Full payment of this invoice was expected by January 31,2015.On December 1,the spot rate was $1.1450 CDN and the three-month forward rate was $1.1250 CDN.
In order to minimize its Foreign Exchange risk and exposure,RXN entered into a contract with its bank on December 1,2014 to deliver $300,000 U.S.in three months time.The spot rate at year-end was $1.16 CDN.On March 1,2015,RXN received the $300,000 U.S.from its client and settled its contract with the bank.
Significant dates pertaining to this transaction are as follows:
-At what amount (in Canadian Dollars)would the forward contract with the bank be recorded?

Question

The following information pertains to questions
RXN's year-end is on December 31.On November 1,2014 when the U.S.dollar was worth $1.165 CDN,RXN sold merchandise to an American client for $300,000.Full payment of this invoice was expected by January 31,2015.On December 1,the spot rate was $1.1450 CDN and the three-month forward rate was $1.1250 CDN.
In order to minimize its Foreign Exchange risk and exposure,RXN entered into a contract with its bank on December 1,2014 to deliver $300,000 U.S.in three months time.The spot rate at year-end was $1.16 CDN.On March 1,2015,RXN received the $300,000 U.S.from its client and settled its contract with the bank.
Significant dates pertaining to this transaction are as follows: 
-At what amount (in Canadian Dollars)would the forward contract with the bank be recorded?

Quizplus · Accepted Answer

RXN entered into a forward contract with the bank on December 1, 2014 to deliver $300,000 U.S. in three months time (i.e. March 1, 2015). The forward rate at that time was $1.1250 CDN for each $1 U.S. Therefore, the bank would pay RXN $300,000 U.S. x $1.1250 CDN/$1 U.S. = $337,500 CDN on March 1, 2015. This is the amount at which the forward contract with the bank would be recorded.

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