The Diez Mil Company (DMC), a U.S. company, made credit sales to four customers in Asia on September 6, 2021, and received payment on October 6, 2021. Information related to these sales is as follows:
Customer Location Invoice Price
Boroda Ltd. Vadodara 3,655,000 Indian rupees (IN)
Thai Group India Nonthaburi, Thalland 1,625,000 Thai baht (THB)
Thai Group, Nagoya, Japan 5,494,000 Japanese yen (JPY)
Mainan Svarikat Skudal, Malaysia 207.400 Malaysian ringgits (MYR
DMC’s fiscal year ends September 30.
Required
1. Use historical exchange rate information available on the Internet at www.x-rates.com, Historical Lookup, to find exchange rates between the U.S. dollar and each foreign currency for September 6, September 30, and October 6, 2021.
2. Determine the foreign exchange gains and losses that DMIC would have recognized in net income in the fiscal years ended September 30, 2021, and September 30, 2022, and the overall foreign exchange gain or loss for each transaction. Determine for which transaction, if any, it would have been important for DMC to hedge its foreign exchange risk.
3. DMC could have acquired a one-mooth put option on September 6, 2021, to bed
foreign
exchange risk associated with each of the four export sales. In each case, the put option would have cost $500 with the strike price equal to the September 6, 2021, spot rate. Determine for which hedges, if any, DMC would have realized a net cash flow benefit from the foreign currency option.
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