Answered Questions

Date Submitted	21-Jul-10
Category	Financial Accounting & Reporting
Heading	CLP Unit 2 page 68
Question	Dear Tutor, in terms of the example in cumulative mthod, i can assume the asset is making a loss as result of foreign exchange, but why forward FX contact can have two separate gains?can you please provide a detail explanation?does that mean you pick two particular date to found out the gain for max and min? in addition, how was the gain calculated?thanks
Answer	No, they are two separate examples: one with a loss of $232,673 on the hedged item and a gain of $186,139 on the hedging instrument; and the other with a loss of $232,673 on the hedged item and a gain of $290,841 on the hedging instrument. The purpose is to illustrate the two extreme ends of hedge effectiveness.