Question

Jackson Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2021, with payment of 20 million Korean won to be received on January 15, 2022. The following exchange rates applied:



Date Spot Rate Forward Rate to Jan.15
December 16, 2021 $ 0.00082 $ 0.00089
December 31, 2021 0.00080 0.00083
January 15, 2022 0.00086 0.00086
Assuming a forward contract was entered into, the foreign currency was originally sold in the foreign currency market on December 16, 2021 at a:

Answer 1

Answer:

The correct option is (b)

Explanation:

According to the scenario, the foreign currency that original sold at the market is shown below:

= (Forward rate to Jan 15 - Spot rate) × paymen made

= ($0.00089 - $0.00082 ) × 20 million

= $0.00007 × 20,000,000

= $1,400 premium

hence, the foreign currency that originally sold at the market is $1,400 premium

Therefore the correct option is (b)