Problem 1

Almira, Inc. is a U.S.-based manufacturer and wholesaler. On 10/15/20x1, Almira made its first international sale. They sold $450,000 of products to a non-U.S. customer. Almira, Inc. agreed to allow the customer to pay for the purchase in its own currency, the FC. To avoid a penalty, the foreign buyer must make payment to Almira by February 2, 20x2. At the time of the sale, the FC/$ spot rate was FC1.97=$1

Almira, Inc. has a December 31 year-end. At 12/31/20x1, the foreign currency spot rate was FC1.95 = $1.

Required: For Almira, Inc.,

1. Give the journal entries for the 10/15/20x1 sale.
2. Give the journal entries for the foreign currency sale at 12/31/ 20x1, when the company closes its books and prepares its financial statements.
3. Give the journal entries for the receipt of payment on the sale on 2/2/20x2. At that date, the foreign currency spot rate was FC 2.00 = $1.
4. Explain how Almira, Inc. can use: (a) forward exchange contracts and (b) foreign exchange options their foreign currency risk.
   1. In your explanation, discuss the type of: (a) forward exchange contract or (b) foreign currency option contracts, they would obtain to hedge their foreign currency risk. No journal entries are required.
5. For Almira, Inc.s foreign customer, explain the type of foreign currency risk the s/he accepts relating to their purchase from Party Pop, including the implications of appreciation or depreciation of their currency relative to Party Pops currency, the U.S. dollar.