If Managers Are Rational, They Will Hedge Only When They

question 32

Multiple Choice

If managers are rational, they will hedge only when they perceive that:

• A) prices are headed in an adverse direction.
• B) derivative instruments are priced lower than actual value.
• C) risk reduction is preferable to higher potential profits.
• D)they can increase their profitability by doing so.

Comprehend the basic principles of loan interest, including factors affecting interest rates and the relation between loan size and period.

Identify the characteristics of economic resources and differentiate between them (e.g., land, labor, capital).

Understand the notion of the time-value of money and its implications for financial decisions.

Examine the effects of changes in supply and demand on interests and rents.

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Definitions:

Cash

A liquid asset representing currency or its equivalents that can be used immediately in transactions without any conversion or delay.

Services Rendered

The provision of work performed by one party for another in exchange for compensation.

Earning Revenue

Earning revenue refers to the total amount of money earned or income generated from a company's normal business activities before any costs or expenses are deducted.

Monetary Value

The value of an asset, service, or amount expressed in terms of money.