Accounting for speculative hedges
Martin Corporation, a U.S. import–export firm, enters into a forward contract on October 2, 2011, to speculate in euros. The contract requires Martin to deliver 1,000,000 euros to the exchange broker on March 31, 2012. Quoted exchange rates for euros are as follows:
|
10/2/11 |
12/31/11 |
3/31/12 |
|
|
Spot rate |
$0.6590 |
$0.6500 |
$0.6550 |
|
30 day forward rate |
0.6580 |
0.6450 |
0.6500 |
|
90 day forward rate |
0.6560 |
0.6410 |
0.6460 |
|
180 day forward rate |
0.6530 |
0.6360 |
0.6400 |
REQUIRED: Prepare the journal entries on Martin’s books to account for the speculation throughout the life of the contract.