If Hedging Eliminates Risk but Results in Lower Cash Flow

question 32

Multiple Choice

If hedging eliminates risk but results in lower cash flow than not hedging,whether a firm hedges or not depends on:

• A)the anticipated changes in the exchange rate.
• B)the firm's ability to increase cash flow from other sources.
• C)the firm's risk-aversion and the firm's reason for considering hedging.
• D)the anticipated changes in the forward rate.

---

Definitions:

Perpetual Inventory

A method of accounting for inventory that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software.

Subsidiary Ledgers

Detailed ledgers that contain information supporting entries recorded in a general ledger, such as accounts receivable or accounts payable details.

Job Order Costing

An accounting methodology used for assigning manufacturing costs to an individual product or batches of products, typically when each product's construction is sufficiently unique.

Process Cost Accounting

A method of accounting used for goods produced continuously, assigning costs to units of output.