Question

Marko Company sold spray paint equipment to Spain for 4,400,000 pesetas (P) on October 1, with...

Marko Company sold spray paint equipment to Spain for 4,400,000 pesetas (P) on October 1, with payment due in six months. The exchange rates were

October 1, 20X6 1 peseta = $ 0.0048
December 31, 20X6 1 peseta = 0.0075
April 1, 20X7 1 peseta = 0.0073

How much overall net gain or net loss did Marko have from its foreign currency exposure?
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Answer #1

The exchange rates are as follows:

October 1, 20X6: 1 peseta = $0.0048

December 1, 20X6: 1 peseta = $0.0075

April 1, 20x6: 1 peseta = $0.0073

The Dollar Value weakened in the period October-December, which means there will be a gain of $0.0075 - $0.0048 = $0.0027(gain)

The Dollar Value strengthened in the period December-April, which means there will be a loss of $0.0073 - $0.0075 = $0.0002 (loss)

Therefore, Overall Net Gain on Foreign Currency Transaction can be calculated as:

Gain in the period Oct-Dec = 4,400,000 peseta x $0.0027 = $11,880

Loss in the period Dec-April = 4,400,000 peseta x $(0.0002) = ($880)

Overall Net Gain = $11,880 - $880 = $11,000 gain

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