African Concepts, has a one-year eur A/P totaling eur 100,000 and a one-year Togolese A/R totaling cfa 120,000,000

Accounting Nov 12, 2020

African Concepts, has a one-year eur A/P totaling eur 100,000 and a one-year Togolese
A/R totaling cfa 120,000,000. The cfa/eur exchange rate is fixed at 655.957.
(a) Can AC offset its eur A/P with its cfa A/R? 3 MARKS
(b) If so, how much exposure remains? 3 MARK

Expert Solution

(a) Yes, because the cfa/eur exchange rate is fixed, and the usd/eur and usd/cfa spot exchange rates are perfectly correlated. Therefore, the A/R and A/P are perfectly hedged up to eur 100,000 or cfa 65,595,700.

(b) An exposure of cfa 54,404,300 still remains.

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