AdminAdmin
January 23rd, 2010, 12:32 PM
In this paper, we argue that a well-designed hedging program creates value primarily by protecting the company's supply of funds and thus guaranteeing the resources necessary to carry out its strategic plan. But, in order to design an effective risk management program, managers need to address a number of difficult questions: How large is the company's exposure to fluctuations in economic variables? And how such price movements affect the firm's future investment opportunities and hence its demand for investment capital? Answers to these questions are necessary to enable management to answer the risk management question: How much of its price exposure should be hedged?