Basic Currency Hedging Strategy Using Forward Contracts

As a financial analyst at a multinational corporation, you are tasked with assessing the exposure of your company to fluctuations in foreign exchange rates. Your company conducts a significant amount of business in Europe, resulting in revenue being generated in euros. Given the recent volatility in the euro to US dollar exchange rate, the CFO has expressed concerns about the potential impact on the company's financial performance.

Draft an essay that outlines a basic currency hedging strategy that your company could implement to mitigate foreign exchange risk associated with euro-denominated revenues. Explain the mechanics of the hedging strategy, and discuss the pros and cons of using this strategy for currency risk management.