ACCTG 102 Lecture Notes - Lecture 30: Accounting, Historical Cost, Accounts Receivable
Document Summary
Forward exchange contracts is an agreement to exchange currencies of two different countries at a specified rate (forward rate) on a future date. At the contract inception the forward rate will be different than the spot rate. The difference between the 2 rates is a discount if the forward rate < the spot rate and a premium if the forward rate is > the spot rate. If the item being hedged is a fc payable then need forward contract to purchase that currency on the same date that payable is due. If item being hedged is fc accounts receivable a forward contract to sell that currency is entered into on the date the a/r is expected to be collected. Using forward contracts as a hedge-hedge of a fc exposed liability on december 1, 2015 a us firm purchased inventory for 500,000 euros payable 3/1/16.
