On November 2017, ABC Ltd entered a contract for US$2.5 million worth of inventory with XYZ Ltd that is a US supplier. The company make a decision to take out a foreign exchange contract for US$2.5 million on 1 November 2017 with NYC bank. The NYC bank agree to supply ABC Ltd with US$2.5 million on 30 June 2018. The good are shipped on 1 April 2018 and are paid on 30 June 2018. ABC Ltd financial year ending 31 December.
The exchange rate is:
Date, Spot rate, Forward rate
31/12/17, 0.67, 0.65
1/4/18, 0.62, 0.60
30/6/18, 0.57, 0.57
What was the gain and loss for this hedging instrument – forward rate contract and their journal entry from 1 Novemeber 2017 to 30 June 2018.
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