Cash flow hedge question

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June 21, 2017 at 11:22 am #393692
daniellemouncer
Member
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Hi, I am working through the F3 notes and on Chapter 3, question 2 I am not entirely sure where the gain on forward value of $47,619 has come from. Are you able to explain this value?

thanks,
danielle
June 27, 2017 at 9:40 pm #394233
P2-D2
Keymaster
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Hi,

It is the difference between if we exchange with or without the contract.

With the contract = 1,100,000 / 1.1 = 1,000,000
Without the contract = 1,100,000 / 1.05 = 1,047,619

As it is cheaper to purchase the machinery with the forward contract then there is a gain on it.

Hope this helps.

Thanks
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