Foreign Currency Effects
Boise Cascade Company is a major producer of paper, building, and office products. The company reported the following items related to foreign exchange gains and losses in its 1993 financial statements (dollars in thousands):
|
1993 |
1992 |
|
|
Foreign exchange gain |
$1,610 |
$6,590 |
Notes:
Foreign exchange gains and losses reported on the Statements of Income (Loss) arose primarily from activities of the Company’s Canadian subsidiaries.
On December 31, 1993, contracts for the purchase of 50,000,000 Canadian dollars were outstanding. Gains or losses in the market value of the forward contracts were recorded as they were incurred during the year and partially offset gains or losses arising from translation of the Canadian subsidiaries’ net liabilities.
Required
a. The Note discussion indicates that the firm, through its Canadian subsidiaries, has net liabilities, in Canadian dollars. Explain the meaning of this term.
b. From the information provided, are you able to tell whether the U.S. dollar strengthened or weakened against the Canadian dollar during 1993? Explain.
c. Does Boise Cascade attempt to fully “hedge” its foreign currency transactions? Explain.
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