Problem: On November 2, 2006, Import Bazaar, a US retailr, ordered merchandise from Matsushita Co. of Japan. The merchandise is to b delivered to Import Bazaar on January 30, 2007 at a price of 1,000,000 yen. Also on Novmber 2, Import Baazar hedged the foreign currency commitment with Matsushita by contracting with its exchange broker to buy 1,000,000 yen for delivery on January 30.
|
02-11-06 |
31-12-06 |
30-01-07 |
| Spot rate |
0.0075 |
0.0076 |
0.0078 |
| 30-day forward rate |
0.0076 |
0.0078 |
0.0079 |
| 90-day forward rate |
0.0078 |
0.0079 |
0.008 |
1. Prepare the entry (or entries) on Import Bazaar's books on November 2, 2006
2. Prepare the adjusting entry on December 31, 2006