The main advantage of a financial market hedge of operating exposure to currency risk is that ______.
A) financial market hedges can completely cancel operating exposures to currency risk
B) it is relatively easy to assess the effectiveness of a financial market hedge of operating exposure
C) the costs of buying or selling financial instruments are low compared to the costs of investing or disinvesting in real assets
D) the uncertain cash flows of operating exposures to currency risk are exactly offset by the uncertain outcomes of a financial market hedge
E) None of the above

Question

Quizplus · Accepted Answer

The main advantage of a financial market hedge of operating exposure to currency risk is that the costs of buying or selling financial instruments are low compared to the costs of investing or disinvesting in real assets. Financial market hedges cannot completely cancel operating exposures to currency risk, and it may not be easy to assess the effectiveness of a financial market hedge. Moreover, the uncertain cash flows of operating exposures to currency risk are not exactly offset by the uncertain outcomes of a financial market hedge.

The Main Advantage of a Financial Market Hedge of Operating