Scribd
Upload
76 views

Handout Forex

An American company, Amerco, sells goods to a German importer for 1 million euros when the exchange rate is $1.32 per euro. Amerco allows 30 days payment, but by then the euro has fallen to $1.30, meaning Amerco receives $20,000 less upon conversion than if paid immediately. Amerco signs a 3-month forward contract with a bank to deliver 1 million euros in exchange for $1,305,000 to lock in an exchange rate and minimize currency risk.

Uploaded by

Tina Llorca
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
76 views

Handout Forex

An American company, Amerco, sells goods to a German importer for 1 million euros when the exchange rate is $1.32 per euro. Amerco allows 30 days payment, but by then the euro has fallen to $1.30, meaning Amerco receives $20,000 less upon conversion than if paid immediately. Amerco signs a 3-month forward contract with a bank to deliver 1 million euros in exchange for $1,305,000 to lock in an exchange rate and minimize currency risk.

Uploaded by

Tina Llorca
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 1

a U.S. exporter (Amerco) sells goods to a German importer that will pay in euros ().

Assume that, as is customary in its industry, Amerco does not require immediate payment and allows its German customer 30 days to pay for its purchases. assume that Amerco, a U.S. company, sells goods to a German customer at the price of 1 million euros when the spot exchange rate is $1.32 per euro. If payment were received at the sale date, Amerco could have converted 1 million euros into $1,320,000; this amount clearly would be the amount at which the sales revenue would be recognized. Instead, Amerco allows the German customer 30 days to pay for its purchase. At the end of 30 days, the euro has depreciated to $1.30 and Amerco is able to convert the 1 million euros received on that date into only $1,300,000. How should Amerco account for this $20,000 decrease in value? on December 1, 2011, the three-month forward rate for euros is $1.305 and Amerco signs a contract with New Manhattan Bank to deliver 1 million euros in three months in exchange for $1,305,000.

You might also like