The use of forward contracts is mainly applied by any business that is either selling or buying a foreign currency that may be interested in managing the risks that are associated with the currency fluctuations. Through the use of the method, such a business can ease the effect of those variations of the cash flows and the stated incomes of the business entity. The risk can be avoided by making an arrangement with a business entity to sell or buy the foreign currency at a specific future date at an approved rate (Walmsley, 2000). Here, both parties are required to match the date that the currency is anticipated to be received. These arrangements are made through the bank where each contract is associated with a specific transaction or sometimes use a number of contracts to cover a pool of transactions (Parameswaran, 2011).