Question #78
Reading: Reading 10 Multinational Operations
PDF File: Reading 10 Multinational Operations.pdf
Page: 43
Status: Unattempted
Question
Edmonton Oilfield Supply has made an equipment sale in Venezuela in the amount of VEF 15,000,000. On the day of the sale, the exchange rate is 1.7519 VEF per 1 Canadian dollar. 90 days later, when the Venezuelan firm pays for the equipment, the exchange rate is 1.6326. As a result of the change in the exchange rate, Edmonton will recognize a:
Answer Choices:
A. gain of $1,096,104
B. loss of $1,789,500
Explanation
On the day of the sale, Edmonton will record an account receivable of 15m/1.7519 =
$8,562,133. When the payment is received and converted to CAD, the realized amount will
be 15m/1.6326 = $9,187,799. As a result of the appreciating VEF, Edmonton will realize a
gain of $9,187,799 − 8,562,133 = CAD 625,666.