How are forward exchanges accounted for?© BrainMass Inc. brainmass.com October 10, 2019, 8:03 am ad1c9bdddf
My Response: For Instructional Purposes Only. Please Use Your Own Example. See attachment.
Forward exchanges is a type of cognate financial mechanism that exists among two parties. One party (X) concedes to purchase an asset from the other party (Y) at a stated future date and at an amount stated instantly.
Steps in Accounting for Forward Exchanges Entails Understanding the Fundamental Instruments and Account Entries (Accounting Tools, 2015, p. 1):
1) Decide the Conditions of the Forward Agreement: This entails application of three components: (1) the spot rate, (2) the forward ratio, and (3) the asset to be traded.
The spot rate identifies the present market financial worth of the asset to be traded. For example, let us examine a forward agreement whereby a manufacturer concedes to sell a pallet bags of rice to a merchant at a future date for an amount stated now. The spot rate becomes the amount of the bag of rice if sold instantly, instead of being sold at a future date.
The expert examines how to account for forward exchange.