Why would shareholders object to a firm pursuing an active currency risk management program? Select all correct answers

A$.$

Reduction in risk of future cash flows improves the planning capability of the firm.

B$.$

Reduction of risk in future cash flows reduces the likelihood that the firm$$s cash flows will fall below a level sufficient to make debt$-$service payments

C$.$

Management has a comparative advantage over the individual shareholder in knowing the actual currency risk of the firm

D$.$

Management is in a better position than shareholders to recognize disequilibrium conditions and to take advantage of opportunities

E$.$

Shareholders are more capable of diversifying currency risk than the management of the firm. If stockholders do not wish to accept the currency risk of any specific firm, they can diversify their portfolios

F$.$

Currency risk management does not increase the expected cash flows of the firm

G$.$

Management often conducts hedging activities that benefit management at the expense of the shareholders

H$.$

Managers cannot outguess the market. If and when markets are in equilibrium, the expected net present value of hedging should be zero

I.

Efficient market theorists believe that investors can see through the $$accounting veil$$ and therefore have already factored the foreign exchange effect into a firm$$s market valuation

J$.$

Management$$s motivation to reduce variability is sometimes driven by accounting reasons. Foreign exchange losses appear in the income statement as a highly visible separate line item or as a footnote, but the higher costs of protection are buried in operating or interest expenses

K$.$

Increase in variability of future cash flows improves the planning capability of the firm

L$.$

It is impossible to estimate the likelihood that the firm$$s cash flows will fall below a level sufficient to make debt$-$service payments

M$.$

Shareholders have a comparative advantage over the firm managers in knowing the actual currency risk of the firm

N$.$

Markets are always in equilibrium. Equilibium conditions imply no opportunities to beat the market by hedging

O$.$

If stockholders do not wish to accept the currency risk of any specific firm, they can contact the firm managers and let the managers know in no uncertain terms that shareholders are dissatisfied. The firm managers will always comply with individual shareholders's preferences

P$.$

Currency risk management always increases the expected cash flows of the firm

Q$.$

Management will never conduct hedging activities that benefit management at the expense of the shareholders

R$.$

Managers can easily outguess the market. Therefore, the expected net present value of hedging is always positive

S$.$

Efficient market theorists believe that investors can never see through the $$accounting veil$$ and therefore the foreign exchange risk managemenent will always add value to a firm$$s market valuation

T$.$

Management$$s motivation to reduce variability is sometimes driven by accounting reasons. Foreign exchange losses are hidden in operating or interest expenses, but the higher costs of protection appears in the income statement as a highly visible separate line item or as a footnote