Accounting/Finance - Hedging Question?

Question

Can anyone give their opinin on Active hedging of financial exposures is not generally accepted among financial managers around the world. Some argue that financial management cannot alone increase the value of the firm and that a firm is better off managing its core business risks while leaving itself exposed to some (if not all) financial risks.
Do you agree or disagree, and why or why not(briefly).

Answer 1

sounds like homework for a finance class.

suppose that your firm sells internationally for foreign curreincies but produces the product at home with domestic costs. suppose further that the time from order placement to shipment is four months [semi-custom capital goods].

would it not make sense to then immediately execute a forward contract to dispose of the foreign currency you'll receive in four months? this shields your firm from the exchange risk that the foreign currency may be devalued between now and then -- after you've already begun production and committed the costs but before you can get paid.


how many other situations can you think of where the same principle holds true?


ah

Answer 2

It relies upon if the risks are inherent of their business company variety, or are exterior aspects that are no longer of their administration. as an occasion a loan business company that needs to borrow at short term expenses and makes long term loans at fixed expenses, could desire to hedge against a upward thrust in short term expenses. regardless of the undeniable fact that a hedge against a drop in authentic assets values, might probably take too plenty attempt to be very well worth the mitigation earnings. a business company that has a brilliant form of foreign places operations that could desire to be impacted by ability of foreign places money fluctuations could desire to mitigate those risks. regardless of the undeniable fact that if 20% of it shoppers are in foreign places united states, it could be extra advantageous to soak up the prospect of decreased sales with the aid of greenback increasing than to attempt to mitigate the puzzling to degree risk.