(Solution Download) The Pier Ten Company a U S company made credit sales


The Pier Ten Company, a U.S. company, made credit sales to four customers in Asia on December 15, 2010, and received payment on January 15, 2011. Information related to these sales is as follows:
Customer ___________________Location _________________Invoice Price
Rama Properties Ltd. ...............New Delhi ............898,000 Indian rupees (INR)
Luzon Island Group .................Manila .................874,000 Philippine pesos (PHP)
Mishima Industries Inc..............Tokyo................1,662,500 Japanese yen (JPY)
Melayu Trading Company...........Kuala Lumpur ........62,550 Malaysian ringgit (MYR)
The Pier Ten Company's fiscal year ends December 31.
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
December 14, 2010, December 31, 2010, and January 14, 2011.
2. Determine the foreign exchange gains and losses that Pier Ten would have recognized in net income in 2010 and 2011, and the overall foreign exchange gain or loss for each transaction. Determine for which transaction it would have been most important for Pier Ten to hedge its foreign exchange risk.
3. Pier Ten could have acquired a one-month put option on December 15, 2010, to hedge the foreign exchange risk associated with each of the four export sales. In each case, the put option would have cost $100 with the strike price equal to the December 15, 2010, spot rate. Determine for which hedges, if any, Pier Ten would have recognized a net gain on the foreign currency option.

 







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