Blossom Inc. entered into a futures contract to sell grain for $1,120 in 30 days. This contract helps the company manage its market riskby locking in the amount it will get when it sells the grain. The contracts trade on an exchange and are net settleable. The brokerrequires a $220 initial margin (normally a percentage of the market value of the contract or a fixed amount multiplied by the number ofcontracts). This amount is deposited in cash with the broker. Like the forward, the futures contract would have a zero value up front.This is a non-financial derivative because the underlying is a non-financial commodity (grain). Blossom intends to settle on a net basis.Prepare the related journal entry at the acquisition date. (Credit account titles are automatically indented when the amount is entered. Donot indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before creditentry.)Account TitlesDebitCredit

In accounting, a journal entry serves as a record of financial transactions and events. Every entry…

Answered: Blossom Inc. entered into a futures…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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An Indian company has a receivable of USD 100,000 to be collected in one month (June). The manager of the Indian Company decided to hedge its risk through market derivatives. He contacted a Forex trader to check the available alternatives. He was provided the following information: Hedging with a forward contract One-month forward rate: INR/USD= 0.0055 Hedging with a call-option contract Exercise Price: INR/USD= 0,0050 Premium: 5% of the value of the option Contract Size: USD 50,000 Maturity: June Hedging with a put-option contract Exercise Price: INR/USD= 0,060 Premium: 2% of the value of the option Contract Size: USD 100,000 Maturity: June Which derivative is the best for this Indian company if on June the exchange rate is INR/USD= 0.062?
suppose that Mr. Binda buys a three-month 5,000 contracts to buy 'commodity-X at a futures price of $1,000 from Mr. John. The contract requires an initial margin of $70 per contract and maintenance margin of $40 per contract. Required: a) Compute the initial margin that both Mr. Binda must deposit to the clearinghouse. b) Compute the maintenance margin that both Mr. Binda must deposit to the clearinghouse.suppose that Mr. Binda buys a three-month 5,000 contracts to buy 'commodity-X at a futures price of $1,000 from Mr. John. The contract requires an initial margin of $70 per contract and maintenance margin of $40 per contract.Required:a) Compute the initial margin that both Mr. Binda must deposit to the clearinghouse.b) Compute the maintenance margin that both Mr. Binda must deposit to the clearinghouse.
Bento entered into a forward exchange contract on October 1, 20X1, to be settled on March 1, 20X2, to hedge a forecasted purchase of inventory on November 1, 20X1. The inventory was purchased on November 1 with payment due on March 1, 20X2. The forward contract was for £75,000, the expected cost of the inventory. The derivative is designated as a cash flow hedge to be continued through to payment of the pound-denominated account payable. The relevant direct exchange rates for the pound follow: Date October 1, 20X1. November 1, 20X1 December 31, 20X1 Spot Rate O $6,000 negative O $3,000 positive O $750 positive O $5,250 negative $1.61 $1.65 $1.58 Forward Rate (to March 1, 20X2) $1.63 $1.68 $1.60 For the year ended December 31, 20X1, the amount of other comprehensive income reported on the statement of comprehensive income should be: [1]
Consider the following futures contract for the currency of Brazil, Brazilian real (BRL). Contract volume: 100,000 Brazilian reals Initial margin: $1000 Maintenance margin: $800 Day Settle price ($/BRL) 1 0.19 2 0.189 3 0.186 4 0.187 (a) Suppose trader C sells their futures contract to trader B on day 4. What is the profit/loss for all three traders? (Note: assume all trades occur at the settle price in the table).
Waterway is a Canadian company that conducts many transactions in $US. Because the price of $US fluctuates daily, Waterway often enters into futures contracts as a way to manage risk. On September 1, 2023, Waterway entered into a future contract to sell US $105,000 for CDN $1.25, which was the market value on September 1. The broker with whom Waterway arranged the contract required a 20% deposit, which Waterway paid in cash. On December 31, Waterway's year-end, the price per $US was CDN $1.30. On January 1, Waterway closed out the contract at the same exchange rate, settling without delivering the cash. Prepare the journal entries to record the futures contract. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. List all debit entries before credit entries.) Date # Account Titles…
Sheridan is a Canadian company that conducts many transactions in $US. Because the price of $US fluctuates daily, Sheridan often enters into futures contracts as a way to manage risk. On September 1, 2023, Sheridan entered into a future contract to sell US $101,000 for CDN $1.20, which was the market value on September 1. The broker with whom Sheridan arranged the contract required a 20% deposit, which Sheridan paid in cash. On December 31, Sheridan's year-end, the price per $US was CDN $1.25. On January 1, Sheridan closed out the contract at the same exchange rate, settling without delivering the cash. Prepare the journal entries to record the futures contract. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries.)
Suppose that on Monday, 7 July, you assume a long position in one December British pound futures contract at the futures price of $1.10/E. The initial margin is $2,000, and the maintenance margin is $1,500. The contract size is £125,000. Assume you do not withdraw excess money from your margin balance. All margin requirements are met with cash. The settlement prices for Monday and Tuesday are shown in the following: Monday, 7 July: $1.15 Tuesday, 8 July: $1.05 What is the balance in your margin account at the end of Tuesday? Select one: a. $2,000 b. -$4,250 c. -$1,000 d. $750 e. $1,750 f. $1,500
Consider the following futures contract for the currency of Brazil, Brazilian real (BRL). Contract volume: 100,000 Brazilian reals Initial margin: $1000 Maintenance margin: $800 Day Settle price ($/BRL) 1 0.19 2 0.189 3 0.186 4 0.187 (Note: assume all trades occur at the settle price in the table). (a) Suppose trader A buys a futures contract from trader B on day 1. What is the balance on their margin accounts by the end of day 2? (d) Suppose trader A sells their futures contract to close out their position on day 2. Trader C buys this futures contract. What is the balance on all margin accounts at the end of day 3 for traders with an open position? Did anyone receive a margin call on day 3, and if so, for how much?
Suppose that on Monday, 7 July, you assume a long position in one December British pound futures contract at the futures price of $1.10/£. The initial margin is $2,000, and the maintenance margin is $1,500. The contract size is £125,000. Assume you do not withdraw excess money from your margin balance. All margin requirements are met with cash. The settlement prices for Monday and the next two days are shown in the following: Monday: $1.10 Tuesday: $1.15 Wednesday: $1.07 What is the balance in your margin account at the end of Wednesday? The correct answer is B. 1500 - Could you please explain why 1500 is the correct answer. a. $1,750 b. $1,500 c. $2,000 d. $-$1,000 e. $750
A futures trader goes for long position on two (2) CME Australian dollar contracts for AUD100,000 per contract. He purchases the currency futures on day 1 at US$0.7850. The margin required to initiate the trading is 5 percent of the contract value, while the maintenance margin is 80% of the initial margin. The settlement prices are US$0.7877 on day 1 and US$0.7860 on day 2. The prices move to US$0.7800 and US$0.7890 on day 3 and day 4 respectively. Then, the trader has decided to close the position on day 4. Calculate the daily marked-to-market transactions and the changes in the margin account. Determine net profit from the futures trading.
The futures price of a commodity such as wheat is $2.50 a bushel. Futures contracts are for 10,000 bushels, and the margin requirement is $2,500 a contract. The maintenance market requirement is $1,000. A speculator expects the price of the commodity to rise and enters into a contract to buy wheat. a. How much must the speculator initially remit? b. If the futures price rises to $2.60, what is the profit and return on the position? c. If the futures price declines to $2.47, what is the loss on the position?
ABC Co. entered a forward contract to hedge a ¥100,000,000 which the company expects to pay in 90 days. The contract calls for ABC Co. to deliver yen (¥) at ¥111.25 per U.S. dollar. If on the delivery date, the spot rate is ¥109.75 per U.S. dollar. How much is the gain (loss) on the hedge?

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