Reason(s) to manage risk by hedging include(s) which of the following?
I. To be able to have needed cash flows
II. To reduce the chance of financial loss
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

Reason(s) to manage risk by hedging include(s) which of the following?
 I. To be able to have needed cash flows
II. To reduce the chance of financial loss
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

Quizplus · Accepted Answer

Hedging is a risk management tool that helps in achieving certainty of cash flows by reducing the impact of price movements on a portfolio. This helps in ensuring needed cash flows, which is stated in statement I. Hedging also helps in reducing the chance of financial loss, which is stated in statement II. Therefore, both statements I and II are correct.

Reason(s) to Manage Risk by Hedging Include(s) Which of the Following