Problem 1 Saban Enterprises, a U.S. company that produces el…
Problem 1 Saban Enterprises, a U.S. company that produces electronic switches for the telecommunications industry, regularly imports component parts from a supplier located in Mexico and makes payments in Mexican pesos. On December 1, Saban imports parts from its Mexican supplier at a price of 1 million Mexican pesos. It receives the parts on December 1 but does not pay for them until March 1 of the following year. In addition, on December 1, Saban enters into a forward contract to purchase 1 million pesos on March 1 of the following year. It appropriately designates forward contract as a cash flow hedge of the Mexican peso liability exposure. The following spot exchange rates and forward exchange rates are available. Date Spot Rate Forward Rate to March 1 December 1 $0.080 $0.085 December 31 $0.086 $0.088 March 1 $0.091 $0.091 Use this information to answer the following two questions.