Which of the following is true of the hedging effects on stakeholders?

Question

Quizplus · Accepted Answer

Bankers and bondholders would like the firm to hedge so that they can ensure timely payment of interest and principal on their loans. Hedging reduces the risk of bankruptcy and default, making the firm more creditworthy. Option A is incorrect because hedging can increase firm value by reducing financial distress costs and making the firm more creditworthy. Option C is incorrect because managers have a fiduciary duty to act in the best interests of their stakeholders, including employees, and hedging can reduce the risk of bankruptcy and job loss. Option D is incorrect because the interests of most employees are closer to those of debt holders, who require stable cash flows and lower risk, than of equity holders, who seek high returns and accept higher risk.

Which of the Following Is True of the Hedging Effects