objective

kkkkkkkkkkkkkkkkkkkkkkkkkkkObjectives

Objective #1 (question #1): Understand the foreign exchange rate environment and Nicoll's motivation for formulating a hedging strategy. Also, understand the risks Nicoll is taking by entering into one of these strategies without having a firm project commitment.

Objective #2 (question #2): Understand that entering into a hedging strategy without the certainty of receiving the 40M DM exposes Nicoll Corporation to significant risks. The risk the firm will be exposed to depends on the strategy selected, how the foreign currency rates fluctuate over time, and the final outcome of the proposed bid.

Objective #3 (question #3): Compute the effective cost/profit Nicoll Corporation will incur/realize on the various hedging strategies given the two alternative spot rates for January 15, x2.

Objective #4 (question #4): Evaluate your answers to questions 2 and 3 and determine which strategy you would suggest to Mr. Nicoll and the firm's board of directors. Once you have chosen a strategy illustrate how you would like to see the strategy disclosed in the company's financial statements. Review FASB Statements #119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," and #107, "Disclosures about Fair Value of Financial Instruments."

Objective #5 (question #5): Reconsider the disclosure that you would have included in your response to question #4 knowing that at year end the proposal had been accepted by the German client.

Objective #6 (questions #6 and question #7): Research and understand the FASB's current guidelines for accounting for foreign currency transactions and hedging activities. Consult FASB Statement #52, "Foreign Currency Translation," FASB Statement #80,"Accounting for Futures Contracts," and your advanced accounting textbook. Prepare the necessary journal entries to record your chosen strategy under the assumption that they do not know if the bid has been accepted at year end, then if the bid has been accepted.

Objective #7 (question #8): Understand the implications to Nicoll Corporation's financial statements at year end for both scenarios in questions #7 and #8, given that the FASB's Exposure Draft, "Accounting for Derivatives" had been passed when the firm initially entered into a hedging strategy.