On June 1, 2013, Vandelay Co. entered into a 90-day forward contract to sell $1,000,000 Singapore dollars (USD)to its bank on August 29, 2013. The following information has been provided:

June 1, 90-day forward rate USD$1 = $0.9750
June 30, 60-day forward rate USD$1 = $0.9630
August 29, spot rate USD$1 = $0.948
Vandelay has a June 30 year-end. What is the exchange gain (loss)at June 30, 2013?
A)$(12,000)
B)$(27,000)
C)$(15,000)
D)$12,000

Question

On June 1, 2013, Vandelay Co. entered into a 90-day forward contract to sell $1,000,000 Singapore dollars (USD)to its bank on August 29, 2013. The following information has been provided:

June 1, 90-day forward rate USD$1 = $0.9750
June 30, 60-day forward rate USD$1 = $0.9630
August 29, spot rate USD$1 = $0.948
Vandelay has a June 30 year-end. What is the exchange gain (loss)at June 30, 2013?
A)$(12,000)
B)$(27,000)
C)$(15,000)
D)$12,000

Quizplus · Accepted Answer

The forward contract was initially valued at $0.9750 per USD. By June 30, the forward rate for the remaining 60 days was $0.9630. The change in the forward rate is $0.9750 - $0.9630 = $0.0120. For $1,000,000, this results in a loss of $12,000 (1,000,000 * $0.0120).