Which one of the following statements is correct in relation to a firm's short-run financial risk?
A)Short-run financial risk results from permanent changes in prices due to new technology.
B)A financially sound firm can become financially distressed as the result of its short-run exposure to financial risk.
C)Each segment of a business should be responsible for hedging its own short-run financial risk.
D)Short-run financial risk is defined as temporary price changes which result directly from natural disasters, such as tornadoes, droughts, and floods.
E)Thus far, hedging techniques have been unsuccessful in reducing short-run financial risk.

Question

Quizplus · Accepted Answer

Short-run financial risk can occur due to various factors such as unexpected changes in interest rates, exchange rates, commodity prices, etc. Even a financially sound firm can face financial distress if it is exposed to short-run financial risk and fails to manage it effectively. Therefore, statement B is correct. The other statements are either incorrect or incomplete.

Which One of the Following Statements Is Correct in Relation