Simpson Sign Company based in Frostbite Falls, Minnesota has a 6-month C$100,000 contract to complete sign work in Winnipeg, Manitoba, Canada. The current spot rate is $1.02/C$ and the forward rate is $1.01/C$. Under conditions of equilibrium, management would use today ________ when preparing operating budgets.
A) $102,000
B) $101,000
C) $100,000
D) None of the above

Question

Quizplus · Accepted Answer

In equilibrium, the forward rate is used for budgeting future cash flows, so the contract value would be calculated using the forward rate of $1.01/C$, resulting in $101,000.

Simpson Sign Company Based in Frostbite Falls, Minnesota Has a 6-Month