Blank 1- Increase / Decrease

Blank 2- Increase / Decrease

Blank 3- Negate / Enhance

Blank 4- help a firm maintain / hinder a firm from maintaining

Blank 5- Volatile / Stable

Blank 6- is / is not

Firms deal with different types of risk in their day-to-day operations and adopt risk management strategies. It is important to understand why firms manage risk. Theoretically, financial management strategies should be undertaken when they increase the price of the firm's common stock. This means that your analysis of a risk management strategy should also involve an examination of the consequences of the strategy on the firm's free cash flows and its WACC. For the strategy to increase the firm's share price, it should the firm's expected future free cash flows and/or its WACC. In certain cases, bondholders and shareholders hedge their investments individually to meet their desired risk management objectives. This is often referred to as a homemade hedge. The use of a homemade hedge by well-diversified investors can the benefits of risk management activities undertaken by the firm. Firms are hesitant to raise external equity, which means most of their capital budgets tend to be financed with debt and internally generated funds. More stable cash flows would its optimal capital budget. Suppose you are comparing two very similar firms. Their operations are the same, and they differ only with respect to the volatility of their earnings. One firm has a risk management program that effectively stabilizes its earnings, and the second firm has more volatile earnings. The firm with earnings is likely to pay more in taxes over the long run. Depending on the nature of the risk management activities employed, it possible that even if the activities do not directly benefit a firm's shareholders, they may benefit other stakeholders of that firm-for example, its managers