The choice of exposures to be hedged depends on

Question

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Hedging is a risk management strategy used to mitigate the potential loss from adverse movements in prices of financial assets or commodities. Therefore, the choice of exposures to be hedged depends on the risk aversion of the company. This means that the company will look to hedge those exposures that pose the greatest risk to the business. For example, a company that relies heavily on imported raw materials may choose to hedge against currency fluctuations to reduce the uncertainty of its costs. In contrast, a company that has a diversified range of revenue streams may choose not to hedge as aggressively, as they are not as exposed to any single risk. Other factors such as desired return on equity, use of options and futures, and the international Fisher effect may come into play, but they are not the primary drivers of the choice of exposures to be hedged.

The Choice of Exposures to Be Hedged Depends on