What is the paradox of hedging balance sheet exposure?
A) Real costs can be incurred to hedge an unrealized translation adjustment.
B) The hedging process rarely works the way management intended.
C) Hedging is a conceptual process that is nearly impossible to undertake in the real world.
D) Markets have yet to be developed that offer the kinds of derivative instruments required for hedging.

Question

Quizplus · Accepted Answer

The paradox of hedging balance sheet exposure is that while hedging can protect against currency risk and improve financial performance, it can also incur real costs to hedge a potential or unrealized translation adjustment. In other words, hedging can be costly and may not always provide a clear benefit to the company.

What Is the Paradox of Hedging Balance Sheet Exposure