The purpose of hedging by a company is to:
A) maximise cash flows and profits.
B) minimise the variability of expected cash flows.
C) decrease the uncertainty of reported cash flows.
D) increase the expected cash flows.

Question

Quizplus · Accepted Answer

The purpose of hedging by a company is to minimise the variability of expected cash flows. This is done by using financial instruments to mitigate the risks associated with fluctuations in prices, exchange rates, or interest rates. By doing so, the company can reduce its exposure to market risks and ensure a more predictable and stable cash flow. While hedging may indirectly help in achieving higher profits or expected cash flows, those are not the primary purposes of hedging.

The Purpose of Hedging by a Company Is To