PART EIGHT Topics in Corporate Finance the agreement. As we discuss in the next section, a variation on the forward contract exists that greatly diminishes this risk.

Forward Contracts ¡n Practice Where are forward contracts commonly used to hedge? Because exchange rate fluctuations can have disastrous consequences for firms that have significant import or export operations, forward contracts are routinely used by such firms to hedge exchange rate risk. For example, Jaguar, the U.K. auto manufacturer (and subsidiary of Ford Motor Co.), historically hedged the U.S. dollar-British pound exchange rate for six months into the future. (The subject of exchange rate hedging with forward contracts is discussed in greater detail in an earlier chapter.)

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