Hedging, or the creation of offsetting assets and liabilities so that gains on one side offset losses on the other, is a common but controversial practice. Arguments in favor of hedging include which of the following statements?
A) Management understands the currency risk situation better than shareholders, and this creates an information asymmetry.
B) Hedging reduces the volatility of free cash flows, which leads to a lower cost of capital and a higher share price.
C) All markets are usually not in equilibrium and parity conditions do not always hold for all countries, so the NPV of hedging could easily be positive.
D) All of the statements above are arguments in favor of hedging.
E) Only statements a and c are arguments in favor of hedging.

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The Answer of Hedging, or the creation of offsetting assets and liabilities so that gains on one side offset losses on the other, is a common but controversial practice. Arguments in favor of hedging include which of the following statements?
A) Management understands the currency risk situation better than shareholders, and this creates an information asymmetry.
B) Hedging reduces the volatility of free cash flows, which leads to a lower cost of capital and a higher share price.
C) All markets are usually not in equilibrium and parity conditions do not always hold for all countries, so the NPV of hedging could easily be positive.
D) All of the statements above are arguments in favor of hedging.
E) Only statements a and c are arguments in favor of hedging.

Hedging, or the Creation of Offsetting Assets and Liabilities So