An organization received an invoice on 2/7/21 for USD 100,000. The invoice is due for payment on 1/8/21. Having a low-risk appetite the organization took out a forward exchange contract (FEC) for the full value of the invoice. The invoice was paid in full on 1/8/21. Based on the following exchange rates what was the net amount the organization paid in AUD2/7/21: 1 AUD = 0.7382 USD1/8/21: 1 AUD = 0.7407 USDFEC: 1 AUD = 0.7395 USDGroup of answer choices$135,464.64 AUD$135,226.50 AUD$100,000.00 AUD$135,007.43 AUD
Question
An organization received an invoice on 2/7/21 for USD 100,000. The invoice is due for payment on 1/8/21. Having a low-risk appetite the organization took out a forward exchange contract (FEC) for the full value of the invoice. The invoice was paid in full on 1/8/21. Based on the following exchange rates what was the net amount the organization paid in AUD2/7/21: 1 AUD = 0.7382 USD1/8/21: 1 AUD = 0.7407 USDFEC: 1 AUD = 0.7395 USDGroup of answer choices135,226.50 AUD135,007.43 AUD
Solution
To calculate the net amount the organization paid in AUD, we need to use the forward exchange contract (FEC) rate, as this is the rate the organization locked in to hedge its foreign currency exposure.
Here's how to calculate it:
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Identify the invoice amount: The invoice is for USD 100,000.
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Identify the FEC rate: The FEC rate is 1 AUD = 0.7395 USD.
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Convert the invoice amount to AUD: To do this, divide the invoice amount in USD by the FEC rate.
So, USD 100,000 / 0.7395 = AUD 135,226.50
Therefore, the net amount the organization paid in AUD is $135,226.50 AUD.
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