A Reason for a Firm to Engage in Hedging That

question 39

Multiple Choice

A reason for a firm to engage in hedging that does not arise within the firm is:

• A)market inefficiencies that provide profitable opportunities through hedging.
• B)regulatory requirements that favor firms that hedge against various exposures.
• C)the possibility that currency fluctuations may affect future obligations of the firm.
• D)that hedging may make the firm less attractive to another firm that is considering a hostile takeover of the firm.

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Definitions:

Anchoring

Anchoring is a psychological phenomenon wherein an individual relies too heavily on an initial piece of information, or 'anchor,' to make subsequent decisions.

Heuristics

Simple, efficient rules, either hard-coded by evolutionary processes or learned, which help in making decisions, forming judgments, or solving problems.

Error-Free Decisions

Decisions made without mistakes, achieved through careful analysis, planning, and consideration of all relevant information.

Recognition Heuristics

A cognitive shortcut where a decision is made based on the recognition or familiarity of an option rather than on a detailed comparison or analysis.