Which of the following statements about risk management strategy is (are) correct?
I. It reduces the variability of a firm's expected cash flows.
II. It reduces the chance of catastrophic financial distress.
A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements I and II are correct.
D) Neither statement I nor II is correct.

Question

Quizplus · Accepted Answer

Statement I is correct because an effective risk management strategy can help a firm diversify its portfolio and hedge against potential losses, which can reduce the variability of its expected cash flows. Statement II is also correct because a good risk management strategy can help a firm reduce the likelihood of catastrophic financial distress by minimizing the impact of potential downside risks. Therefore, both statements I and II are correct.

Which of the Following Statements About Risk Management Strategy Is