Hedging Strategy Evaluation for Multinational Operations

A multinational corporation (MNC) headquartered in the United States has significant operations in both Europe and Asia. Due to fluctuations in currency exchange rates, the MNC has decided to hedge its currency risk associated with its expected cash flows from these regions. The MNC anticipates receiving €10 million in six months from its European operations and ¥1 billion in six months from its Asian operations.

The firm is considering the following hedging strategies: a forward contract for euros, a put option for euros, and a forward contract for yen. Each strategy has its own cost and potential risks. Evaluate the strategies considering their effectiveness, costs, and implications under different scenarios.