Arguments in favour of hedging: Reduction in risk in future cash flows --1 Improves the planning capability of the firm --2 Reduces the likelihood that the firm's cash flows will fall below a necessary minimum (financial distress) 2 Management has a comparative advantage over the individual shareholder in knowing the actual currency risk of the firm 3 Management can use selective hedgingArguments in favour of hedging: Reduction in risk in future cash flows --1 Improves the planning capability of the firm --2 Reduces the likelihood that the firm’s cash flows will fall below a necessary minimum (financial distress) 2 Management has a comparative advantage over the individual shareholder in knowing the actual currency risk of the firm 3 Management can use selective hedging