Strategic vs Tactical Currency Management

Consider a multinational corporation (MNC) with significant operations in both the United States and Europe. The company is exposed to FX risks due to fluctuating exchange rates between the USD and EUR. The CFO is contemplating whether to deploy a strategic or tactical approach to managing currency exposure.

The strategic approach involves setting a long-term framework for currency risk management, perhaps through natural hedging or using forward contracts that extend over several periods. In contrast, the tactical approach would focus on taking advantage of short-term market movements, which might involve active trading in the currency markets or utilizing options for hedging specific transactions.

In your essay, discuss the advantages and disadvantages of both the strategic and tactical approaches to currency management. Additionally, provide your recommendation on which approach the MNC should adopt, supporting your answer with relevant examples and considerations about market timing, risk appetite, and the company's operational context.