Because most hedging acts to reduce risk, managers should expect that hedging will:
A)Increase profits
B)Decrease profits
C)Increase the firm's stock price
D)Stabilize the firm's dividend payout

Question

Quizplus · Accepted Answer

Hedging generally involves incurring an additional cost to reduce risk. Therefore, it is likely to reduce potential profits. However, it can also bring stability to the firm's operations by mitigating the impact of unexpected events, which in the long term, may translate into greater profits.

Because Most Hedging Acts to Reduce Risk, Managers Should Expect