Hedging Strategy using Currency Forward Contracts

A company, ABC Corporation, is exposed to currency risk due to its extensive operations in Europe. The company generates revenue in euros but incurs many of its costs in US dollars. To mitigate the risk of adverse currency fluctuations affecting its profitability, ABC Corporation considers using currency forward contracts to hedge its exposure.

In your response, explain how ABC Corporation can implement a hedging strategy using currency forward contracts. Discuss the benefits of using this hedging strategy and any potential limitations it may have. Provide specific details on how the forward contracts work and the implications for ABC Corporation's financial reporting.