Question

87. Hedging is used by companies to:

• A. Decrease the variability of tax paid
• B. Increase the variability of expected cash flows
• C. Decrease the variability of expected cash flows
• D. Increase the variability of tax paid

Answer 1

The correct option is C Decrease the variability of expected cash flows

A hedge is an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.
Hedging is analogous to taking out an insurance policy