Which of the following is the most important reason for firms to use risk management techniques?
A) To make supernormal profits
B) To reduce the chance of catastrophic financial distress
C) To reduce management's liability
D) To control inventory losses

Question

Quizplus · Accepted Answer

The most important reason for firms to use risk management techniques is to reduce the chance of catastrophic financial distress. In other words, risk management helps firms avoid potential financial losses that could jeopardize their operations and survival. While reducing management's liability and controlling inventory losses may be potential benefits of risk management, they are not the primary reasons for using these techniques. Making supernormal profits is not a reason for risk management, as it is not related to managing or mitigating risks.

Which of the Following Is the Most Important Reason for Firms