Question: The Pier Ten Company, a U.S.
The Pier Ten Company, a U.S. company, made credit sales to four customers in Asia on September 15, 2015, and received payment on October 15, 2015. Information related to these sales is as follows
The Pier Ten Company’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 15, September 30, and October 15, 2015.
2. Determine the foreign exchange gains and losses that Pier Ten would have recognized in net income in the fiscal years ended September 30, 2015, and September 30, 2016, and the overall foreign exchange gain or loss for each transaction. Determine for which transaction, if any, it would have been important for Pier Ten to hedge its foreign exchange risk.
3. Pier Ten could have acquired a one-month put option on September 15, 2015, 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 September 15, 2015, 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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Customer Location Invoice Price 3,319,000 Indian rupees (INR) 2,337,000 Philippine pesos (PHP) 6,017,000 Japanese yen (JPY) 214,800 Malaysian ringgit (MYR) Rama Properties Ltd. Luzon Island Group New Delhi Manila Mishima Industries Inc. Tokyo Kuala Lumpur Melayu Trading Company
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