Explain how a forward contract could be used, Finance Basics

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Explain how a forward contract could be used

Problem

A Canadian-based company that has an annual turnover of CAD 4 million is expecting three large payments in the coming year that will be paid in USD (approximately USD 1M each).

1. Explain how a forward contract could be used to ensure the company is not exposed to exchange rate volatility.
2. Explain how exposure netting could be used to minimize the company's exposure to exchange rate volatility.
3. What are the strengths and weaknesses of each approach?

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Finance Basics: Explain how a forward contract could be used

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