Assume that on January 15, 2021 Singh agrees to purchase US$100,000 for C$117,000 for delivery on January 15, 2022. The exchange rate at Singh's December 31 year-end is US$1 = C$1.20 and the January 15, 2022 exchange rate is US$1 = C$1.19. What is the foreign exchange gain or loss recognized at December 31, 2021?
A)$2,000 gain.
B)$2,000 loss.
C)$3,000 gain.
D)$3,000 loss.

Question

Quizplus · Accepted Answer

At December 31, 2021, the exchange rate is US$1 = C$1.20. Therefore, the value of the US$100,000 contract at this rate would be C$120,000 (US$100,000 * 1.20). Since Singh originally agreed to purchase the US dollars for C$117,000, the difference between the contract value at year-end (C$120,000) and the agreed purchase price (C$117,000) is C$3,000. This represents a foreign exchange gain because the value of the US dollars in Canadian dollars increased from the time the contract was agreed upon until the year-end.

Assume That on January 15, 2021 Singh Agrees to Purchase