Shareholders of U.S. Steel argue that hedging foreign exchange risk does not help create value for the company. Shareholders think that trading foreign exchange futures and options is not the the expertise of the company (the company may lose money on average and has to pay transaction fees) and hedging imposes extra administrative costs in corporate Treasury.

The shareholder arguments are valid. As a member of the management team, you want to convince shareholders that hedging foreign exchange risk has merits.

Question: Provide some significant benefits of hedging that would create shareholder value. Explain how hedging increases value. State your assumptions clearly in your arguments.