Question

A company which produces electricity, like Progress Energy, is considering buying extra coal to hold in inventory. They want to buffer against a potential strike at a major coal producer which would likely result in a significant price increase. This type of inventory is

A. Safety stock
B. Cycle stock
C. Anticipation
D. Hedging

Answer 1

Answer:

D. Hedging

Explanation:

Hedge inventory is the abundance inventory bought or kept in stock as a buffer with the goal of diminishing or restricting dangers related with future value changes or to exploit it

So, if a company like Progress Energy, is considering buying extra coal to hold in inventory. They want to buffer against a potential strike at a major coal producer which would likely result in a significant price increase. This type of inventory is hedging.