Key takeaways
- Exposure = foreign-currency purchases you haven’t yet paid for.
- A 5% CAD fall on US$500,000 of purchases costs about C$35,000.
- Forwards lock a rate; options set a worst case; limit orders target a rate.
- A written hedging policy keeps decisions consistent.
Measure your exposure
List the foreign-currency payments you expect over the next 6–12 months: supplier invoices, freight, software and contractors. That total is your exposure.
What a currency move could cost
Using the Bank of Canada USD/CAD rate on 27 October 2026 (1.4038), US$500,000 of yearly purchases costs about C$701,900.
| If the CAD weakens by | Extra cost |
|---|---|
| 1% | About C$7,000 |
| 3% | About C$21,000 |
| 5% | About C$35,100 |
Tools to manage it
| Tool | What it does |
|---|---|
| Forward contract | Locks a rate for a known future payment |
| Option | Sets a worst-case rate, keeps the upside, for a premium |
| Limit order | Converts automatically if the rate reaches your target |
| Natural hedging | Pays USD costs from USD revenue |
| Pricing terms | Agrees prices in CAD or shares currency moves with suppliers |
A simple policy
- Decide what share of the next 6–12 months to protect, often 50–75%.
- Hedge known payments with forwards; use options where timing is uncertain.
- Review monthly as orders and invoices change.
- Write it down so decisions don’t depend on guessing the market.
Specialist FX providers such as Corpay, OFX and Bound offer these tools to small and mid-sized businesses.
A worked example
A Mississauga importer pays about US$40,000 a month to suppliers, or US$240,000 over the next six months. It hedges 60% of that, US$144,000, with forward contracts at today’s rate.
- If the Canadian dollar weakens by 3%, the hedged payments cost about C$6,060 less than they would have unhedged.
- If the Canadian dollar strengthens instead, the business pays the agreed rate on the hedged part and still benefits on the 40% left open.
Common mistakes
- Hedging 100% of uncertain orders, then being locked in if orders fall.
- Treating hedging as a bet on the rate rather than protection for your margins.
- Not telling sales and purchasing teams the rate the budget is built on.
Providers that can help
Forwards, options and limit orders
Forward contracts for up to 12 months
Automated hedging for smaller businesses
FAQs
What is currency risk for an importer?
It’s the risk that the Canadian dollar weakens before you pay foreign suppliers, making your purchases cost more in CAD.
How much of my exposure should I hedge?
Many businesses protect a share of the next 6–12 months, often 50–75%, so they’re covered without locking in everything. It depends on your margins and how predictable your orders are.
Can small businesses hedge?
Yes. Several FX providers offer forwards and other tools to small and mid-sized businesses, often from modest amounts.
What is a hedging policy?
A short written rule that sets how much of your expected currency exposure you protect, which tools you use and how often you review it, so decisions don’t depend on guessing the market.
Do I need a deposit to book a forward?
Many providers ask for a deposit, often a percentage of the amount. Terms vary, so ask each provider.
Sources: Bank of Canada daily exchange rates; FX providers’ published product information.