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- This topic has 2 replies, 2 voices, and was last updated 7 years ago by francesca09.
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- October 12, 2017 at 11:22 pm #410706
Hi,
While revising I found the below question quite confusing.O&P is an international shipping company with operations throughout the world. It operates seven cruise liners and one of its major expenses is diesel to run the ships. O&P has a well staffed treasury department, which makes use of complex derivative instruments to hedge against the volatile price of oil on the world markets. In recent times the degree of volatility has been particularly high with changes in price of up to 30% in just a 6 month period.
Which one of the following best describes O&P’s hedging strategy?
– Threat focusing on weakness
-Opportunity focusing on weakness
-Threat focusing on strength
-Opportunity focusing on strengthBased on a a previous similar question, my answer was: Threat focusing on strength. However the the correct answer outlined was OPPORTUNITY FOCUSING ON WEAKNESS.
And the explanation given for the correct answer was:
This strategy involves dealing with a threat in an area that O&P is strong. The strength helps to reduce the risk faced.Can anyone please explain?
Much appreciated!October 15, 2017 at 10:02 am #411076The answer’s explanation is right, but they seem to have chosen the wrong option. I agree with you: threat focusing on strength.
October 15, 2017 at 11:13 am #411114Thank you Ken for the clarification!
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