For most firms the principle reason for hedging is

Question

Quizplus · Accepted Answer

The principle reason for hedging for most firms is to reduce the likelihood of financial distress. Hedging helps firms avoid potential losses from fluctuations in commodity prices, interest rates, and foreign exchange rates. By hedging, firms can stabilize their cash flows, reduce their exposure to risk, and ensure that they can meet their financial obligations. This, in turn, reduces the likelihood of financial distress and ultimately benefits the owners of both shares and debt. However, hedging does not necessarily comply with SEC regulations concerning firm risk tolerances or solely satisfy the owners of the firm's shares or debt.

For Most Firms the Principle Reason for Hedging Is