Some believe that investors who invest in MNCs can hedge exchange rate risk on their own....

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Some believe that investors who invest in MNCs can hedge exchange rate risk on their own. They also argue that if investors believe that the investments in U.S.-based MNCs would be adversely affected when foreign currencies weaken against the dollar, they could take their positions in currency derivatives that would increase in value if foreign currencies weakened against the dollar. Thus, the MNCs may not need to worry about exchange rate risk. Present a compelling rebuttal of the above argument. Some believe that investors who invest in MNCs can hedge exchange rate risk on their own. They also argue that if investors believe that the investments in U.S.-based MNCs would be adversely affected when foreign currencies weaken against the dollar, they could take their positions in currency derivatives that would increase in value if foreign currencies weakened against the dollar. Thus, the MNCs may not need to worry about exchange rate risk. Present a compelling rebuttal of the above argument.

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While individual investors may have the ability to hedge their own exchange rate risk through currency derivatives there are several reasons why the a... View the full answer