You are the group treasurer with responsibility for managing the foreign exchange exposure of Conglomerate plc, a
Question:
You are the group treasurer with responsibility for managing the foreign exchange exposure of Conglomerate plc, a large UK domiciled multinational company. You have just received a phone call from the managing Director that calls into question the company's policy of actively hedging its foreign exchange exposure. The managing director has phoned you because he has received a memo from a newly appointed independent director which states:
'' the company's currency exposure does not need to be hedged because the majority of shareholders hold diversified portfolios which contain shares in a number of other companies. These shareholders that do not possess diversified portfolios can simply hedge the foreign exchange exposure arising from their holdings in Comglomerate plc for themselves; there is no need for the company to hedge this exposure.''
Compose a short reply to the managing director's concerns which:
1-Explains the reasoning underlying the arguments put forward in the statements above
2-Evaluates the validity of these arguments
3-Provides an additional reason why you think that the company should continue to actively hedge its currency exposure.