The long-term storage of inventory can be a strategy employed by firms to hedge against commodity price uncertainty. Which of the following is NOT a possible outcome associated with this strategy?
A) The cost associated with the storage of inventory can be mitigated if the firm is vertically integrated, that is it both produces and sells the commodity.
B) The strategy has associated with it storage costs that can be greater than the potential losses due to future commodity price changes.
C) The strategy can require significant up-front financing that could require external financing with associated issuance and debt servicing costs
D) If the inventory purchase is funded internally, this could put a strain on the firm's working capital position.

Question

Quizplus · Accepted Answer

The cost associated with the storage of inventory can indeed be mitigated through vertical integration, but this is not an outcome of the strategy itself; rather, it's a condition that can make the strategy more viable. The other options (B, C, D) are potential negative outcomes directly associated with the strategy of long-term inventory storage.

The Long-Term Storage of Inventory Can Be a Strategy Employed