Why Do Some Small Firms Choose Not to Hedge Transactions

question 21

Multiple Choice

Why do some small firms choose not to hedge transactions even though there may be a benefit from hedging?

• A)They do not have the in-house expertise to enter into the proper hedging transactions.
• B)The cost of complying with accounting regulations related to hedging outweigh the benefits that might be gained from hedging.
• C)Small firms generally do not have enough at stake financially to allow them to deal with firms engaged in hedging.
• D)Creditors of small firms generally refuse to allow the firms to be involved in hedging transactions.

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Definitions:

Accounting Responsibilities

The duties and tasks associated with managing and recording a company's financial transactions, ensuring compliance with accounting laws and standards.

Financial Planning Models

Quantitative models used in financial planning to forecast the financial performance and needs of a business under various conditions.

Forecasting Sales

The process of estimating future sales revenue over a specific period, based on historical data, market analysis, and other factors.

Manufacturing Overhead

All indirect costs associated with manufacturing, including utilities, supervision, and maintenance of equipment, not directly tied to a specific product.