Supply Chain Management Professional (SCMP) · Question
What is the primary purpose of a 'hedging' strategy in procurement?
Hedging is employed to protect against adverse price movements in the market, often for raw materials or currencies, by using financial instruments.
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Question: What is the primary purpose of a 'hedging' strategy in procurement?
Answer options: ✅ To mitigate financial risks associated with price volatility of commodities.
- To secure preferential pricing from a single supplier.
- To diversify the supplier base for critical components.
- To forecast future demand with greater accuracy.
Correct answer: To mitigate financial risks associated with price volatility of commodities.
Explanation: Hedging is employed to protect against adverse price movements in the market, often for raw materials or currencies, by using financial instruments.
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