Financial Risk Manager Part 1

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Explanation:

The question asks for the EXCEPT choice, meaning the option that is not a valid reason to avoid hedging.

A is valid: if shareholders are well diversified, they may not need the firm to hedge.
B is valid: if commodity price changes are passed through the supply chain, hedging may be unnecessary or even counterproductive.
C is valid: hedging can create career risk if management does not understand it.
D is the exception: if shareholders are focused on gross margins, that is generally a reason to hedge, because hedging can stabilize margins rather than avoid it.

Therefore, D is the correct answer.

Explanation:

The question asks for the EXCEPT choice, meaning the option that is not a valid reason to avoid hedging.

A is valid: if shareholders are well diversified, they may not need the firm to hedge.
B is valid: if commodity price changes are passed through the supply chain, hedging may be unnecessary or even counterproductive.
C is valid: hedging can create career risk if management does not understand it.
D is the exception: if shareholders are focused on gross margins, that is generally a reason to hedge, because hedging can stabilize margins rather than avoid it.

Therefore, D is the correct answer.

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MManit

Last updated: April 18, 2026 at 11:32

Hedge may be unnecessary if shareholders are well diversified

33.3%

Hedge may be counterproductive if hedging is not the norm and commodity price changes ripple from raw material to wholesale and retail

16.7%

Treasurer may incur career risk if senior management (and Board of Directors) does not under fully understand the nature of the hedge

16.7%

Hedge may be inappropriate if shareholders are focused on gross margins, and the cost of hedging would reduce margins to an unacceptable level

33.3%