Why Hedge? The value of a firm,according to financial theory,is the net present value of all expected future cash flows. The fact that these cash flows are expected emphasizes that nothing about the future is certain. Currency risk is defined roughly as the variance in expected cash flows arising from unexpected exchange rate changes. A firm that hedges these exposures reduces some of the variance in the value of its future expected cash flows.Why Hedge? The value of a firm, according to financial theory, is the net present value of all expected future cash flows. The fact that these cash flows are expected emphasizes that nothing about the future is certain. Currency risk is defined roughly as the variance in expected cash flows arising from unexpected exchange rate changes. A firm that hedges these exposures reduces some of the variance in the value of its future expected cash flows