Argue against using this technique:

Technique: Hedging with Forward Contracts

R$$zsa and Darabos $(2015)$ stress hedging forward contracts as an internal risk$-$reducing tool for companies deciding their exchange rates for next years.

Example: A European business intends to pay a vendor in six months by purchasing one million Japanese yen $($JPY$).$ Right now, one Euro is equivalent to $130$ Japanese Yen. A decline in the value of the Euro, which would increase the transaction's cost, is a source of concern for the company. The company makes a deal to buy $1,000,000$ JPY at a fixed price of $1$ EUR $=128$ JPY$,$ to be finalized in six months.

Scenario $1($No Currency Movement$)$: Six months later, the spot rate is still $1$ EUR $=130$ JPY$.$ The company still needs to purchase $1,000,000$ JPY$.$ If they don$$t use the forward contract, they will have to pay around $7,692\mathrm{.}31$ EUR, based on the exchange rate of $130$ JPY for $1$ EUR. The company locked in a rate of $1$ Euro $=128$ Japanese Yen with the forward contract. This means the cost would be $1,000,000$ JPY divided by $128$ JPY$,$ which equals $7,812\mathrm{.}50$ EUR. The company paid a little extra to protect itself, which helped against a stronger Yen than anticipated.

Scenario $2($Currency Movement in Favor of the Company$)$: Six months later, the spot rate is $1$ EUR $=125$ JPY$.$ Without the forward contract, the company would pay $1,000,000$ JPY $/125$ JPY $=8,000$ EUR. With the forward contract, the cost is $7,812\mathrm{.}50$ EUR. Although the company didn$$t benefit from the favorable movement, it still avoided the risk of further depreciation of the Euro. Forward contracts offer stability in international transactions and protect companies from market changes, reducing exchange rate risks.