Question - MNC Corp. (a U. S. based company) sold parts to a South Korean customer on December 1, 2009, with payment of 10 million South Korean won to be received on March 31, 2010. The following exchange rates apply:
Forward Rate
Date Spot Rate (to Mar 31, 2010)
1-Dec-09 0.0035 0.0034
31-Dec-09 0.0033 0.0032
31-Mar-10 0.0038 NA
Assuming that MNC did not enter into a forward contract, how much foreign exchange gain or loss should it report on its 2011 income statement with regard to this transaction?
$ 5,000 gain.
$ 3,000 gain.
$ 2,000 loss.
$ 1,000 loss.
Assuming that MNC entered into a forward contract to sell 10 million South Korean won on December 1, 2011, as fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2011 resulting from a fluctuation in the value of the won?