The principle of hedging calls for the matching of a firm's average:
A)liquidity of its assets with its liabilities and equity
B)liquidity of its accounts receivable with its accounts payable
C)maturities of its assets with its liabilities and equity
D)maturities of its sales with its assets

Question

Quizplus · Accepted Answer

The principle of hedging requires a firm to match the maturities of its assets with its liabilities and equity. This means the firm should have enough resources to pay off its short-term and long-term liabilities as they become due. By matching maturities, the firm can avoid liquidity and cash flow problems that may arise when debts become due and the firm does not have enough cash to meet its obligations. Matching maturities also helps the firm minimize interest rate risk, as interest rates may fluctuate depending on the maturity of the debt.

The Principle of Hedging Calls for the Matching of a Firm's