8. What was the net increase or decrease in cash flow from having purchased the foreign currency option to hedge this exposure to foreign exchange risk?
9. What is the net impact on Black Lion Company’s Year 1 net income because of this hedge of a forecasted foreign currency purchase?
10. What is the net impact on Black Lion Company’s Year 2 net income because of this hedge of a forecast foreign currency purchase? Assume that the raw materials are consumed and become a part of cost of goods sold in Year 2.
Chapter 8, Exercise 11
Alliance Corporation (an Australian company) invests 1,000,000 marks in a foreign subsidiary on January 1, Year 1. The subsidiary commences operations on that date, and generates net income of 200,000 marks during its first year of operations. No dividends are sent to the parent this year. Relevant exchange rates between Alliance’s reporting currency (A$) and the mark is as follows:
Chapter 8, Case 8-3 (BellSouth Corporation)
Required: Given the disclosure provided by BellSouth Corporation, answer the following questions:
1.Why did the company report a foreign currency loss because of the devaluation of the Brazilian real?