Hedging Strategies for Currency Risk Management at XYZ Corporation

XYZ Corporation, a U.S.-based multinational company, is concerned about potential adverse movements in the exchange rate between the U.S. dollar and the euro, as 40% of its revenues are generated from European operations. The current exchange rate is 1.10 USD/EUR, and XYZ expects to receive €10 million in six months. To mitigate the currency risk associated with this future cash inflow, the Chief Financial Officer (CFO) is considering various hedging strategies involving euro-denominated options and forward contracts.

Discuss different hedging strategies XYZ Corporation could employ to manage its currency risk related to the expected euro receivable. In your response, analyze the advantages and disadvantages of each strategy, including how they align with the firm's overall risk management objectives. Finally, recommend the most appropriate hedging strategy for XYZ Corporation and justify your recommendation based on risk exposure, costs, and market conditions.