Question 1 On September 1,20x1, Norton Company, a U.S. based manufacturer, sold inventory to a customer located outside of the U.S. In conjunction with their foreign sale, and to facilitate entering into the foreign market, Norton Company agreed to accept the customer's currency, which is designated as foreign currency units or "FCUS." The agreed selling price = 100,000 FCUS or $65,000, at the related spot rate. The spot rates and forward rates on various dates relevant to this transaction are: Date September 1, 20x1 December 31, 20x1 February 1, 20x2 Spot Exchange Rate $0.65 = 1 FCU $0.68 = 1 FCU $0.67 = 1 FCU For this transaction, ignore any present value adjustments, if applicable. Question 2 Using the information from Question 1, Norton Company is deciding whether to hedge their foreign currency risk related to this sale transaction with a forward foreign currency exchange contract. The related forward exchange rates are: Date September 1, 20x1 December 31, 20x1 February 1, 20x2 Forward Exchange Rates $0.62 =1 FCU $0.65 = 1 FCU $0.67 = 1 FCU Required A. Recommend the type of forward foreign currency exchange contract Norton should enter into to hedge their foreign currency sale transaction as described in Question 1. B. Assuming the company designates the forward exchange contract as a fair value hedge of the company's foreign currency sale, give management a brief explanation of the 3 steps required in accounting for a fair value hedge. (Do not give journal entries, just give the accounting steps) C. For the relevant reporting dates, compute the value of the forward exchange contract at the important dates, as applicable, which are (again, no journal entries required, just the computation of the value of the forward exchange contract): 1. September 1, 20x1, assuming this is the date they enter into the forward exchange hedge, 2. December 31, 20x1, and 3. February 1, 20x2