Why would the management of a multinational corporation incur real costs to hedge accounting exposure, which is only on paper?
A) Fluctuations in reported income may affect stock price.
B) Management compensation may be tied to accounting income.
C) Hedging can smooth income.
D) All of the above

Question

Quizplus · Accepted Answer

All of the reasons given could be motivating factors for a multinational corporation to incur real costs to hedge accounting exposure. Fluctuations in reported income can cause stock prices to fluctuate, which can affect investor confidence and potentially result in significant losses for the corporation. Management compensation is often tied to accounting income, making it critical for managers to ensure that they are meeting their targets while also avoiding negative surprises. Finally, hedging can provide a way to smooth income fluctuations, which can help make financial statements more predictable and easier to understand for investors and other stakeholders.

Why Would the Management of a Multinational Corporation Incur Real