1stApril, 2020 an Australian Company purchased inventory from a foreign supplier costing $FC 50,000 on trade credit. Payment was due on 30thAugust,
Question 1 (12 marks)
1stApril, 2020 an Australian Company purchased inventory from a foreign supplier costing $FC 50,000 on trade credit. Payment was due on 30thAugust, 2020. The companys financial year ends on 30thJune.
The following exchange rates applied:
1stApril $A 1.00 = $FC 0.8
30thJune $A 1.00 = $FC 0.6
30thAugust $A 1.00 = $FC 0.9
Record all relevant journal entries.
Question 2 (18 marks)
On 1stApril 2020, XYZ Ltd enters into a contract to purchase toys from foreign supplier costing $FC 50,000. The toys are to be delivered on 30thAugust 2020. $FC 50,000 is payable on delivery. XYZ Ltd takes out a forward contract on 1stApril 2020 to purchase $FC 50,000 on 30thAugust 2020 at AUD/FC 0.85. At 30 June 2020, the forward rate for 30thAugust is AUD/USD 0.7.
What is the economic hedge objective for XYZ Ltd?(1 mark)
Prepare the required journal entry at 30thJune 2020 for XYZ Ltd.(3 marks)
Prepare the required journal entries at 30thAugust 2020 for XYZ Ltd.(9 marks)
With hindsight, discuss if XYZ Ltd made the optimal financial decision in taking out a hedge (derivative, forward contract)(5 marks)
Question 3 (14 marks)
Your friend Jin is working at Company AUS Toys, an Australian manufacturing company, selling toys to Company Toy Shop. Company Toy Shop also buys toys from Company CNY Toys in China which has fixed exchange rate. Jins senior manager is complaining about how Australian company is disadvantaged to the company in a country with fixed exchange rate. Jin is not sure about the differences in exchange rate will impact the business dealings with Company Toy Shop.
Identify and explain 2 advantages and 2 disadvantages of the fixed exchange rate.(4 marks)
Identify and explain 3 determinants of the exchange rate.(6 marks)
Explain why senior manager is complaining about the firm in a country with fixed exchange rates.(4 marks)]
Question 5 (16 marks)
Jins Farmed Fish is an Australian company which farms salmons in ocean tanks off the Port Stephens coast of NSW (Australia) and currently sells domestically to IGA supermarkets. Jin has adopted the United Nations Sustainable Development Goals (SDGs) and is preparing the sustainability report. There are 17 SDGs: no poverty; zero hunger; good health and well-being; quality education; gender equality; clean water and sanitation; affordable and clean energy; decent work and economic growth; industry, innovation and infrastructure; reduced inequalities; sustainable cities and communities; responsible consumption and production; climate action; life below water; life on land; peace, justice and strong institutions; partnerships for the goals.
Identify 3 key goals that would be most relevant for Jin to achieve a better and more sustainable future for alland explain why they would be the most relevant.(9 marks)
Explain how Jin can achieve the identified goals supported by detailed examples.(7 marks)
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