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

question 7

Multiple Choice

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.

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