DERIVATIVES & HEDGING

HEDGING

On December 1, 2016, Yamato Company entered into forward exchange contracts to purchase US $ 1, 000 in 90 days for
delivery on March 1, 2017 for P40.15. The exchange rates available on various dates are as follows:
12/1/16 12/31/16 3/1/17
Spot Rate P40.00 P40.30 P40.20
30-day forward rate P40.05 P40.45 P40.40
60-day forward rate P40.10 P40.40 P40.50
90-day forward rate P40.15 P40.45 P40.60

Case 1: EXPOSED LIABILITY

On December 1, 2016, Yamato Company purchased inventory for US $ 1, 000 payable on March 1, 2017
Case 2: UNRECOGNIZED FOREIGN CURRENCY FIRM COMMITMENT – FAIR VALUE HEDGE
On December 1, 2016, Yamato Company to purchase special order goods from New York Company. The contract
meets the requirements of a firm commitment and will take place in 90 days or on March 1, 2017.
Case 3: HEDGE OF A FORECASTED TRANSACTION – CASH FLOW HEDGE
On December 1, 2016, Yamato Company expects to purchase a machine for $ 1, 000 in US on March 1, 2017. The
transaction is probable but there is no binding agreement for this purchase and is to be denominated in dollars.
Case 4: SPECULATION
Yamato Company entered into the forward contract for speculative purposes in anticipation for a gain, and enters
into a contact on December 1, 2016 to acquire US $ 1, 000 on March 1, 2017.

OPTIONS

On December 1, 2016, YOU Company paid P6, 000 to purchase a 90-day put option for FC 400, 000. The option’s purpose
is to hedge an exposed accounts receivable of FC 400, 000 from a sale of merchandise. The merchandise is to be shipped
on December 1, 2016, payment for which is due on March 1, 2017.
Relevant rates and market values at different dates are as follows:
12/1/16 12/31/16 3/1/17
Spot rate (Market price) P1.20 P1.12 P1.13
Strike price (Exercise price) P1.20 P1.20 P1.20
Fair value of Put Option P6, 000 P36, 000 P28, 000

REQUIRED:
Prepare journal entries for the above information.