In: Accounting
Review Case 7-2 Portofino Company. Address the three questions
at the end of the case. Summarize...
Review Case 7-2 Portofino Company. Address the three questions
at the end of the case. Summarize your findings in a 3-5-page
paper. Be sure to properly cite your resources using APA style.
Portofino Company made purchases on account from three foreign
suppliers on December 15, 2012, with payment made on January 15,
2013. Information related to these purchases is as follows:
Supplier
|
Location
|
Invoice Price
|
Beija Flor Ltda
|
Sao, Paulo, Brazil
|
65,000 Brazilian reals
|
Quetzala SA
|
Guatemala City, Guatemala
|
250,000 Guatemalan quetzals
|
Mariposa SA de CV
|
Guadalajara, Mexico
|
400,000 Mexican pesos
|
Portofino Company’s fiscal year ends December 31.
Required:
- Use historical exchange rate information available on the
Internet at www.oanda.com to find interbank exchange rates between
the U.S. dollar and each foreign currency for the period December
15, 2012, to January 15, 2013.
- Determine the foreign exchange gains and losses that Portofino
would have recognized in net income in 2012 and 2013, and the
overall foreign exchange gain or loss for each transaction.
Determine for which transaction it would have been most important
for Portofino to hedge its foreign exchange risk.
- Portofino could have acquired a one-month call option on
December 15, 2012, to hedge the foreign exchange risk associated
with each of the three import purchases. In each case, the option
would have had an exercise price equal to the spot rate at December
15, 2012, and would have cost $200. Determine for which hedges, if
any, Portofino would have recognized a net gain on the foreign
currency option.