Test: CPA Financial Accounting and Reporting (FAR)

1.

On December 1, Year 1, the Fairfax Company signs a contract to receive 1 million Euros on January 31, Year 2 at a price of $1.1 million in a two month forward contract. On December 1, the spot rate for Euros is $1.1 in US dollars. Why would Fairfax enter into this contract?

Fairfax believes that the value of Euros will decrease in relation to the US dollar

Fairfax could be hedging a future need to make a payment in Euros or speculating that Euros will increase in value

Fairfax believes that the value of Euros will increase at the same rate as the US dollars

Fairfax believes that the European economy will grow at a rate faster than that of the US economy

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