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CASE 3 - Firm Commitment Hedged with Forward Contract

. Forward RatesSpot Ratesfor 3/31/20029/30/2001FC1 = $0.65FC1 = $0.6612/31/2001 FC1 = $0.67FC1 = $0.693/31/2002FC1 = $0.69FC1 = $0.69. CASE 3 - Firm Commitment Hedged with Forward Contract. CASE 3 - Firm Commitment Hedged with Forward Contract. The entity documents the fo

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CASE 3 - Firm Commitment Hedged with Forward Contract

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    1. CASE 3 - Firm Commitment Hedged with Forward Contract On 9/30/2001, GlobalTechCo, a U.S. company issues a purchase order to a foreign supplier for equipment to be delivered and paid for at 3/31/2002. The terms of the agreement meet the criteria for a firm commitment. The price is denominated in the foreign currency—FC10,000,000. The company simultaneously enters into a forward- exchange contract, which matures 3/31/2002, in order to receive FC10,000,000 and pay U.S. $6,600,000.

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