Problem 5: On July 1, 2015 the West Company purchased a 1,000,000 Pound Sterling
ID: 2475042 • Letter: P
Question
Problem 5: On July 1, 2015 the West Company purchased a 1,000,000 Pound Sterling CD from the Kardashian Bank of London. This 10% 3 year CD pays interest on June 30. Additional information is as follows:
July 1, 2015 $1.85 = 1 pound sterling
December 31, 2015 $1.99 = 1 pound sterling
June 30, 2016 $1.88 = 1 pound sterling
December 31, 2016 $2.02 = 1 pound sterling
June 30, 2017 $2.05 = 1 pound sterling
December 31, 2017 $2.07 = 1 pound sterling
June 30, 2018 $2.00 = 1 pound sterling
Answer the following
If West had purchased a forward contract on July 3rd2015 to sell the 1 million pound sterling for $1.99 how would the income or loss of West have been different in 2015, 2016, 2017, 2018?
Explanation / Answer
Date Particulars Amount (Pond) Spot Rate$ Forward rate $ Gain/Loss $ Total Gain/Loss $ 01-Jul-15 Purchases Pond 100000 1.85 1.99 0.14 140000 31-Dec-15 Recogniaton of Gain Loss 1.99 1.99 0 0 30-Jun-16 1.88 1.99 0.11 30-Jun-16 Interest Payable 10000 1100 31-Dec-16 Recogniaton of Gain Loss 2.02 1.99 -0.03 -30000 30-Jun-17 2.05 1.99 -0.06 30-Jun-16 Interest Payable 1000 -60 31-Dec-17 Recogniaton of Gain Loss 2.07 1.99 -0.08 -80000 30-Jun-18 2 1.99 -0.01 30-Jun-16 Interest Payable 100 -1 Total 111100 13.86 13.93 0.07 31039