(Question 1) Why might a firm undertake risk-reducing financial transactions, for example, a hedge against fluctuations in raw materials prices? Give at least one good reason. What types of risk-reducing financial transactions does your organization use?
(Question 2) Which of the following companies would be more likely to hedge its raw materials prices? Explain your answer.
- A mature firm with no debt outstanding.
- A growth firm that will rely on debt to finance future capital investments.