Because creditors may prefer that firms maintain low exposure to exchange rate risk, exchange rate movements may cause earnings to be more volatile, and because investors may prefer corporations to perform hedging for them, exchange rate risk is probably relevant.

Question

Quizplus · Accepted Answer

The statement presents valid reasons why exchange rate risk is relevant for corporations, which suggests that it is true. Creditors may not want companies to bear too much foreign currency exposure, and investors may appreciate risk management actions by corporations to mitigate exchange rate fluctuations. Additionally, exchange rate movements can impact a company's earnings and financial performances, underscoring the importance of exchange rate risk management.

Because Creditors May Prefer That Firms Maintain Low Exposure to Exchange