Hedging Currency Risk Strategies for MNCs

A multinational corporation (MNC) based in the United States operates in Europe and has significant transactions denominated in euros. To manage its currency risk effectively, the MNC decides to enter into a currency hedging contract. The treasurer of the MNC is considering three different hedging strategies: forward contracts, options, and cross-currency swaps. Each strategy has distinct characteristics and implications for the financial statements.

Which of the following hedging strategies would best protect the MNC against adverse movements in the euro relative to the US dollar while also providing flexibility in its operations?