Hi,

I have to write an essay about the following statement:

"...Multinational corporations should not use financial derivatives to manage currency risk, as such instruments can create incentives to speculate on exchange rate movements and push firms to bankruptcy..."

This statement will be evaluated by focusing on the value relevance of foreign exchange risk management together with the costs and benefits of using derivatives as vehicles for managing currency exposure.

I am now busy with the advantages of hedging, but i dont quite get why corporate taxes and managerial risk aversion can be helpful to the value of companies and to reduce the risk. Hopefully you can help me... Already thanks in advance