Zimmer Corporation, a U.S. firm, purchased merchandise from Taisho Company of Japan on November 1, 2011, for 10,000,000 yen, payable on December 1, 2011. The spot rate for yen on November 1 was $0.0075, and on December 1 the spot rate was $0.0076.
REQUIRED
1. Did the dollar weaken or strengthen against the yen between November 1 and December 1, 2011? Explain.
2. On November 1, 2011, at what amount did Zimmer record the account payable to Taisho?
3. On December 1, 2011, Zimmer paid the 10,000,000 yen to Taisho. Prepare the journal entry to record settlement of the account on Zimmer’s books.
4. If Zimmer had chosen to hedge its exposed net liability position on November 1, would it have entered a forward contract to purchase yen for future receipt or to sell yen for future delivery? Explain.
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