In evaluating the pros and cons of corporate risk management, one argument against hedging is
A)if the corporate guys were good at forecasting exchange rates, they would make more money on Wall Street, so only incompetent managers are left at corporations to hedge.
B)shareholders who are diversified have already managed their exchange rate risk.
C)the hedging costs go into someone else's pocket.
D)none of the above

Question

Quizplus · Accepted Answer

Shareholders who are diversified have already managed their exchange rate risk. In other words, if a company hedges its currency risk, it is essentially duplicating the risk management efforts of its shareholders who have already diversified their investments globally. Therefore, hedging may not provide any additional benefit to the shareholders.

In Evaluating the Pros and Cons of Corporate Risk Management