The asset's forward price is $200,000. It hedges its transaction by purchasing a $205,000 forward contract. The forward
Posted: Fri Jul 01, 2022 8:51 am
The asset's forward price is $200,000. It hedges itstransaction by purchasing a $205,000 forward contract. The forwardcontract incurs a paper loss of $15,000 throughout the hedgingperiod. At the completion of the hedge, the forward contract haslost $20,000 in cumulative value and the asset is $20,000 lessexpensive. Describe the accounting entries that would be made andthe impact on the firm's earnings and balance sheet. What wouldchange if it were not an efficient hedge?