By hedging short-term financial risk, a firm can:
A) ensure a steady rate of return for its shareholders.
B) eliminate price changes over the long-term.
C) ensure its own economic viability.
D) gain time to adapt to changing market conditions.
E) eliminate its exposure to price increases in raw materials.

Question

Quizplus · Accepted Answer

By hedging short-term financial risk, a firm can gain time to adapt to changing market conditions. It can protect itself from unexpected market fluctuations and adjust its operations accordingly, ensuring its continued viability. While hedging can provide some protection against price increases in raw materials, it cannot eliminate exposure to such increases entirely. Hedging has limited impact on long-term price changes and cannot ensure a steady rate of return for shareholders.

By Hedging Short-Term Financial Risk, a Firm Can