In the context of managing working capital,the hedging principle refers to which of the following?
A) speculation regarding the direction of short-term interest rates
B) the usage of interest rate swaps
C) matching the maturity of the source of financing to the cash flow generating characteristics of the asset being financed
D) protecting the firm against the risk of rising interest rates

Question

Quizplus · Accepted Answer

The hedging principle in the context of managing working capital involves matching the maturity of the source of financing to the cash flow generating characteristics of the asset being financed. This helps to minimize the risk of financing costs increasing due to changes in interest rates. While interest rate swaps can be used to manage interest rate risk, they are not necessarily tied to the hedging principle in working capital management. Speculation regarding the direction of short-term interest rates and protecting the firm against the risk of rising interest rates are not directly related to the concept of hedging in working capital management.

In the Context of Managing Working Capital,the Hedging Principle Refers