In the realm of international finance, standard hedging can be a resourceful tool to a financial firm. In order to figure out the pros and cons of hedging, one needs to understand two basic terms: exchange risk and hedging. The term exchange risk, also known as foreign-exchange risk, is defined as “the risk of an investment’s value changing due to changes in currency exchange rates.” Furthermore, exchange risk can affect both export/import businesses and investors making international trades. Hedging is the financial term for mitigating risk. For the sake of simplicity and understandability, hedging can be thought of as insurance for international trading and currency. Investors and export/import businesses should be aware of hedging since they can use instruments in the market to reduce exchange risk. In summary, exchange risk is the risk and volatility that arises from currency fluctuations and hedging is the tool(s) to mitigate and reduce this risk. It is very easy to automatically assume that every international businesses and investors should use hedging because it mitigates risk. But as a matter of fact, this is not the case. It was previously mentioned that hedging can be thought of as insurance to protect against exchange risk, but just like insurance costs, there are costs related to the perks of hedging. It is without a doubt that hedging can be advantageous to a firm, but many should realize the costs as well. Businesses and investors should evaluate the benefits and costs of hedging in order to figure out if the benefits outweigh the costs. The scope of this discussion will further help in determining whether or not a business and/or an investor should hedge. There are disadvantages to hedging and the main backbone to these disadvantages is the costs associated with hedging. If a firm is considering to hedge against exchange risk by reducing the levels of local currency cash and marketable securities, there lies the cost of opportunity and operational complications. In this case, the opportunity cost comes from the fact that the firm can experience the loss of higher interest rates on local currency securities. The operational complication will arise from problems with arranging to reduce these levels of LC. In reverse, if the same firm thinks it best to hedge by borrowing local currency instead of reducing it, the firm should realize that they could incur higher interest costs – that is, paying a monetary cost. Another common situation is that a firm may use the alternative hedging technique of invoicing exports in foreign currency and imports in local currency. Even this common hedging tool comes with the cost of losing export sales and implementing a lower price, which leads to less profit; in addition, the firm would have to pay a premium price for imports. Whether it is monetary cost, opportunity cost or the loss of sales, the cons of hedging should be intricately evaluated to make sure that the benefits outweigh these costs. Besides the fact that there are disadvantages to hedging, firms should realize what tools are available to their disposal and the benefits of hedging. Risk is part of the inevitable nature of financial markets but hedging can reduce this risk through many various forms. For example, if a firm decides to hedge against currency depreciation then the firm has the alternative of mitigating devaluation by selling local currency forwards, buying a local currency put option, tightening credit, delaying the receivables of hard currency, borrowing locally, speeding up payment of intersubsidiary accounts payable/accounts receivable, and invoicing exports in foreign currency and importing in local currency. The firm has all these alternatives to choose from to mitigate the devaluation that may arise from currency fluctuation. The objectives of hedging are also its benefits. The objectives are to minimize translation exposure, minimize quarter-to-quarter earnings fluctuations due to exchange rate changes, minimizing transaction exposure, minimizing economic exposure, and avoiding surprises. Whether or not a firm decides to hedge, a firm should be meticulous in its decision. There are benefits along with costs that should be compared to one another for the best interest of businesses and investors that deal with the international markets today.