Hedging Currency Risk: Forward vs. Futures for ABC Corporation

ABC Corporation, a U.S.-based manufacturer, is facing significant currency risk due to its exposure in the European market. Currently, ABC anticipates receiving €5 million in six months from a contractual sale to a European distributor. With the current exchange rate at 1 USD = 0.85 EUR, the company is concerned about potential fluctuations in the EUR/USD exchange rate that could reduce their expected revenues in dollar terms.

To mitigate this risk, ABC’s treasurer is considering using forward contracts to lock in the current exchange rate. However, she is also assessing the pros and cons of utilizing two distinct hedging strategies: a long forward contract and a series of monthly futures contracts covering the anticipated sale amount.

Discuss the implications, advantages, and disadvantages of using a long forward contract versus a series of futures contracts as hedging strategies for ABC Corporation's anticipated euro proceeds. In your response, be sure to address the factors influencing the choice between the two approaches and evaluate their effectiveness in managing currency risk.