Advantages of using forward contracts : They are useful for budgeting, as the rate at which the company will

l buy or sell is fixed in advance. There is no up-front premium to pay whn using forward contracts. The contract can be drawn up so that the exchange takes place on any agreed working day. Disadvantages of forward contracts : They are legally binding agreements that must be honoured regardless of the exchange rate prevailing on the actual forward contract date. They may not be suitable where there is uncertainty about future cash flows. For example, if a company tenders for a contract and the tender is unsuccessful, all obligations under the Forward Contract must still be honoured.