Which one of the following statements is correct in relation to a firm's short-run financial risk?
A) Short-run financial risk results from permanent changes in prices due to new technology.
B) A financially sound firm can become financially distressed as the result of its short-run exposure to financial risk.
C) Each segment of a business entity should be responsible for hedging its own short-run financial risk.
D) Short-run financial risk is defined as changes resulting from fundamental shifts in the underlying economics of a business.
E) Thus far, hedging techniques have been unsuccessful in reducing short-run financial risk.

Question

Quizplus · Accepted Answer

A financially sound firm can still face short-run financial risk due to factors like unexpected changes in market demand or supply, interest rate fluctuations, and credit availability. These factors can cause temporary cash flow problems or even bankruptcy in extreme cases. It is therefore important for firms to manage their short-run financial risk through effective financial planning, budgeting, and risk management strategies.

Which One of the Following Statements Is Correct in Relation