Firms can hedge risk by making real investments in assets with offsetting risk.

Question

Quizplus · Accepted Answer

This is true. Firms can invest in assets that have an inverse relationship with the risk they are trying to hedge against. For example, if a firm is worried about the price of oil increasing, they may invest in renewable energy sources which are not directly impacted by oil prices. By doing so, they can reduce their exposure to fluctuations in oil prices and hedge against that risk.

Firms Can Hedge Risk by Making Real Investments in Assets