The use of hedging by a company should:
A) increase the variability of reported cash flows.
B) increase the variability of expected cash flows.
C) decrease the variability of reported cash flows.
D) decrease the variability of expected cash flows.

Question

Quizplus · Accepted Answer

The use of hedging is meant to reduce the variability of expected cash flows by minimizing the impact of unexpected fluctuations in exchange rates or commodity prices. By reducing the uncertainty of expected cash flows, companies can better plan and allocate resources on a more stable basis, allowing for better decision-making and more accurate forecasting.

The Use of Hedging by a Company Should