The hedging principle implies that permanent asset investments not financed by spontaneous sources should be financed with permanent sources,and temporary investments not financed by spontaneous sources should be financed with temporary sources.

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The hedging principle states that the financing for permanent asset investments that are not financed by spontaneous sources should come from permanent sources, and financing for temporary investments that are not financed by spontaneous sources should come from temporary sources. This is done in order to prevent imbalances in the firm's debt and equity structure.

The Hedging Principle Implies That Permanent Asset Investments Not Financed