Most of the evidence to-date indicates that firms with which two of the following characteristics are most apt to frequently use derivatives?
I.firms with low financial distress costs
II.firms with high financial distress costs
III.firms with easy access to capital markets
IV.firms with constrained access to capital markets
A)I and III only
B)I and IV only
C)II and III only
D)II and IV only
E)III and IV only

Question

Quizplus · Accepted Answer

Firms with high financial distress costs (II) use derivatives to hedge against risks that could lead to financial distress. Firms with constrained access to capital markets (IV) use derivatives to manage risks and stabilize cash flows, as they cannot easily raise funds.

Most of the Evidence To-Date Indicates That Firms with Which