Benefits of Hedging.
A company can benefit from the preceding techniques only to the extent that it can forecast future exchange rates more accurately than the general market. For example, if the company has a foreign currency cash inflow, it would hedge only if the forward rate exceeds its estimate of the future spot rate. Conversely, with a foreign currency cash outflow, it would hedge only if the forward rate was below its estimated future spot rate. In this way, it would apparently be following the profit-guaranteeing dictum of buy low-sell high. The key word, however, is apparently because attempting to profit from foreign exchange forecasting is speculating rather than hedging. The hedger is well advised to assume that the market knows as much as she does. Those who feel that they have superior information may choose to speculate, but this activity should not be confused with hedging.