Grant Ltd, an Australian company, exports goods to Alabama Ltd, a US firm. All sales contracts are denominated in US dollars. Sales of US$1 million are made on 1 April 2017 and shipped FOB Melbourne on 1 May 2017. The amount is due for payment by Alabama Ltd on 1 August 2017. On 1 May 2017 Grant Ltd also entered a forward contract with EFG Bank, where Grant Ltd will provide US$1 million to EFG Bank on 1 August 2017.

The forward rate of the contract is $AUD1.00 = US$0.83 on 1 May 2017. Grant Ltd uses cash-flow hedge accounting.

Additional Information:

The relevant exchange rates are provided below:

Date	Spot Rate	Forward Rate
1 April 2017 1 May 2017 30 June 2017 1 August 2017	0.80 0.82 0.85 0.87	- 0.83 0.86 0.87

Grant Ltds balance date is 30 June.

Required:

(a) Provide all necessary journal entries for Grant Ltd to account for both the sale to Alabama Ltd and the forward contract with EFG Bank. (Narrations are NOT required. All workings must be provided. Round to the nearest dollar). (10 marks)

(b) What is a forward contract and how does it reduce foreign currency risk exposure?

(3 marks)