A Hedge Between Which Two of the Following Firms Is

question 18

Multiple Choice

A hedge between which two of the following firms is most apt to reduce each firm's financial risk exposure?

• A)wheat farmer and bakery
• B)oil producer and coal miner
• C)wheat grower and pharmaceutical firm
• D)pastry bakery and cotton farmer
• E)shoe manufacturer and coat manufacturer

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Definitions:

Capital Structure

The mix of different types of debt and equity a company uses to finance its operations.

Tax

Mandatory financial charges or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Bankruptcy Costs

Expenses associated with the bankruptcy process, including legal fees, court fees, and losses from selling assets at reduced prices, impacting the value recovered by creditors.

Interest Tax Shield

A reduction in taxable income for an individual or corporation achieved by deducting interest paid on their loans.