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# Foreign Currency Transaction - Interest-Bearing Note

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On July 1, 2009, Houghton Company borrowed 200,000 euros from a foreign lender evidenced by an interest-bearing note due on July 1, 2010. The note is denominated in euros. The U.S. dollar equivalent of the note principal is as follows:

Date Amount
July 1, 2009 (date borrowed) \$195,000
Dec 31, 2009 (Houghton's year end) 220,000
July 1, 2010 (date repaid) 230,000

In its 2010 income statement, what amount should Houghton include as a foreign exchange gain or loss on the note?

a) \$35,000 gain
b) \$35,000 loss
c) \$10,000 gain
d) \$10,000 loss

#### Solution Preview

On July 1, 2009, Houghton Company borrowed 200,000 euros from a foreign lender evidenced by an interest-bearing note due on July 1, 2010. The note is denominated in euros. The U.S. dollar equivalent of the note principal is as follows:

Date ...

#### Solution Summary

This solution identifies the correct amount Houghton needs to include as a foreign exchange gain or loss and justifies why.

\$2.19
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Assuming that Hong Kong comes about as close to the paradign for perfect capital mobility as one can get, answer the following questions:

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