Question $5$: A US$-$based firm's cash flows are as follows. It has some of its operations in Canada and it is subject to foreign exchange risk due to the exchange rate movements. Its profit decreases significantly if the Canadian dollar appreciates.

$\backslash$table$[[\backslash$table$[[,\backslash$table$[[,\backslash$table$[[$GERGTESCE$],[$gSingiso$]],\backslash$table$[[(810)/($ CSt $885)]],],[$Sales$],[(1)$ U$.$S$,$ sales,$$320\mathrm{.}00,5320\mathrm{.}00,$$$320\mathrm{.}00],[(2)$ Canadian sales,CSA $=3\mathrm{.}00,$CSA $=3\mathrm{.}20,$CSA $=3\mathrm{.}40],[(3)$ Total sales in U$.$S$,$ S$,$$$323\mathrm{.}00,$$$32320,$$$323\mathrm{.}40],[$Cost of Materials and Operating Expenses$],[\backslash$table$[[(4)$ U$.$S$,$ cost of materials$],[(5)$ Canadian cost of materials$],[(6)$ Total cost of materials in U$.$S$.$ S$],[(7)$ Operating expenses$]],$$$50\mathrm{.}00,$$$50\mathrm{.}00,$S$50\mathrm{.}00],[$CS$2200=150\mathrm{.}00,$CS$200=160\mathrm{.}00,$CS$200=170\mathrm{.}00],[$$$200\mathrm{.}00,$$$210\mathrm{.}00,$$$220\mathrm{.}00],[$S $60\mathrm{.}00,560,00,$S $60\mathrm{.}00],[$Interest Expenses$],[\backslash$table$[[(8)$ U$.$S$,$ interest expenses$],[(9)$ Canadian interest expenses$],[(10)$ Total intorost expenses in U$.$S$.$S$]],$S $3,$$$3,$$$3],[$CS$10=7\mathrm{.}5,$cs$10=,$CS$10=8\mathrm{.}50],[$$$10\mathrm{.}5,$$$11,$$$11\mathrm{.}50],[$Cash llows in U$.$S$.$ S before taxes,S $52\mathrm{.}50,$$$42\mathrm{.}20,$$$31\mathrm{.}9]]]]]]$

Requirement: What type of exchange rate risk does it face and how the firm can mitigate the risk?

$10$