It Can Be Argued That, While Financial Hedging Can Be

question 98

Multiple Choice

It can be argued that, while financial hedging can be used to stabilize a firm's cash flows,

• A)it is not a substitute for long-term operational hedging.
• B)it is therefore a substitute for long-term operational hedging.
• C)it is inferior to money market hedging.
• D)none of the above.

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Definitions:

Trading Costs

Trading costs are the expenses incurred in buying and selling financial instruments, including commissions, spreads, and slippage.

Lockbox System

A service provided by banks to companies for the collection of payments from customers, where the payments are sent directly to a post office box to expedite processing.

Treasury Bills

Treasury bills are short-term government securities with maturities ranging from a few days to 52 weeks, sold at a discount from their face value.

Collection Time

The average period it takes for a company to receive payments owed by its customers after a sale has been made.