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This question discusses about hedging. The answer key mentioned that ‘a stable hedging policy can be used to reduce agency conflicts between shareholders and managers. Could you please explain the relationship between hedging and agency problem?
It is a slightly tenuous point here to mention agency conflicts (and not a point I think I would have made) but what the paragraph is really meaning that it is better to have a consistent policy when hedging so that both the shareholders and the managers know what is happening and will both be protected in the longer term.
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