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

Question

Quizplus · Accepted Answer

A hedge between a wheat farmer and a bakery would be the most apt to reduce each firm's financial risk exposure. The wheat farmer's income is directly tied to the price of wheat, while the bakery's expenses are directly tied to the price of wheat flour. By hedging, both parties can reduce their exposure to price fluctuations and stabilize their financial positions.

A Hedge Between Which Two of the Following Firms Is