Westwood Plastics Inc‪.‬

The vice-president of finance for Westwood Plastics, Inc. (Westwood), wants to assess the impact of the possibility of a weakening Canadian dollar on the company’s financial health given its exposure to the Euro. Because Westwood is required by a loan covenant to generate a minimum level of pre-tax earnings, management is concerned about the possible impact of the exchange rate volatility on projected income and cash flows. The vice-president of finance is considering both an option and a forward strategy to minimize the foreign exchange risk Westwood is facing. She must decide how to use financial instruments to hedge the risk.