Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. The response format is open.

Why are currency forwards needed?
e.g. a European company has to pay 1 million USD exactly one year from now While that is theoretically possible, that is not a very common case. Mostly likely if they had to make a 1 million USD payment a year from now and they had the cash on hand they would be able to just make the payment today.  A more common scenario for currency forwards is for investment hedging.  Say that European company wants to buy into a mutual fund of some sort, say FUSEX. That is a USD based mutual fund. You can't buy into it directly with Euros. So if the company wants to buy into the fund they would need to convert their Euros to to USD. But now they have an extra risk parameter. They are not just exposed to the fluctuations of the fund, they are also exposed to the fluctuations of the currency market. Perhaps that fund will make a killing, but the exchange rate will tank and they will lose all their gains. By creating a forward to hedge their currency exposure risk they do not face this risk (flip side: if the exchange rate rises in a favorable rate they also don't get that benefit, unless they use an FX Option, but that is generally more expensive and complicated).