Storm Technologies Ltd. has a significant net U.S. cashflow position which exposes the company to foreign exchange risk. As vice-president of finance, Todd Harrison is interested in determining the impact on cashflow and reported net income of a strengthening Canadian dollar. Several alternative hedging strategies are suggested including: 1) forward contracts, 2) call options, 3) put options, and 4) a combination of put and call options. Because the company also has a significant amount of U.S. debt, there is an automatic hedge as the Canadian dollar increases, since the U.S. liability necessarily decreases.
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