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North Shore Equipment ( NSE ) , a U.S. company , consistently purchases steel from a supplier in Japan with the invoice price denominated in Japanese vens . During the past year , NSE experienced substantial losses from foreign currency exchanges due to fluctuations in the exchange rate of the U.S. dollar to the Japanese yen . Therefore , Brian Johnson , NSE's CEO, has asked you to examine whether derivative* financial instruments ( e .g., foreign currency forward contracts and foreign currency options ) to hedge the company's exposure to foreign exchange risk should be used going forward . Required Write a memo to CEO Johnson discussing* any advantages and / or disadvantages of using* forward contracts and options as a hedge against foreign exchange risk . Please be sure to recommend which type of hedging instrument you believe NSE should use . Make sure to justify your* recommendation . Please make sure to properly cite* any resources you use to answer this question ."