_____ Paxco has an English subsidiary, Saxco. On 1/1/06, Paxco concluded that the pound would strengthen during the remainder of 2006. On this date, Saxco's balance sheet in pounds was as follows:
Saxco's functional currency is the pound. On 1/1/06, Paxco entered into a 12-month FX forward to buy 300,000 pounds at the forward rate of $.82 (the spot rate at the time was $.80). On 12/31/06, Paxco settled the FX forward when the direct spot exchange rate was $.75. What is the change in Paxco's AOCI-Cumulative Translation Adjustment account for 2006?
A) $15,000 decrease from the translation process.
B) $21,000 decrease from the hedging transaction.
C) $30,000 decrease ($15,000 from the translation process and $15,000 from the hedging transaction).
D) $36,000 decrease ($15,000 from the translation process and $21,000 from the hedging transaction).
E) None of the above.

Question

_____ Paxco has an English subsidiary, Saxco. On 1/1/06, Paxco concluded that the pound would strengthen during the remainder of 2006. On this date, Saxco's balance sheet in pounds was as follows:
 Saxco's functional currency is the pound. On 1/1/06, Paxco entered into a 12-month FX forward to buy 300,000 pounds at the forward rate of $.82 (the spot rate at the time was $.80). On 12/31/06, Paxco settled the FX forward when the direct spot exchange rate was $.75. What is the change in Paxco's AOCI-Cumulative Translation Adjustment account for 2006?
A) $15,000 decrease from the translation process. 
B) $21,000 decrease from the hedging transaction. 
C) $30,000 decrease ($15,000 from the translation process and $15,000 from the hedging transaction). 
D) $36,000 decrease ($15,000 from the translation process and $21,000 from the hedging transaction). 
E) None of the above.

Quizplus · Accepted Answer

The Answer of _____ Paxco has an English subsidiary, Saxco. On 1/1/06, Paxco concluded that the pound would strengthen during the remainder of 2006. On this date, Saxco's balance sheet in pounds was as follows:
 Saxco's functional currency is the pound. On 1/1/06, Paxco entered into a 12-month FX forward to buy 300,000 pounds at the forward rate of $.82 (the spot rate at the time was $.80). On 12/31/06, Paxco settled the FX forward when the direct spot exchange rate was $.75. What is the change in Paxco's AOCI-Cumulative Translation Adjustment account for 2006?
A) $15,000 decrease from the translation process. 
B) $21,000 decrease from the hedging transaction. 
C) $30,000 decrease ($15,000 from the translation process and $15,000 from the hedging transaction). 
D) $36,000 decrease ($15,000 from the translation process and $21,000 from the hedging transaction). 
E) None of the above.

_____ Paxco Has an English Subsidiary, Saxco