Final answer:
To hedge against sugar price volatility, Coca-Cola could use forward contracts, which allows the company to lock in sugar prices for future purchase, providing a shield against price fluctuations.
Step-by-step explanation:
A valid strategy for Coca-Cola to hedge against price volatility in the sugar market is to engage in forward contracts. A forward contract is a financial instrument where two parties agree to buy or sell a certain amount of a commodity, like sugar, at a predetermined price on a specific future date. This tool allows a company like Coca-Cola to lock in sugar prices, thus protecting against the risk of price fluctuations.
Among the options provided, product diversification and leveraged buyouts are not direct methods of hedging against commodity price volatility. Product diversification could reduce the overall impact of sugar prices across the company's product portfolio, but it does not directly address price volatility. Leveraged buyouts are financial transactions related to the purchase of a company and are not related to commodity hedging strategies. Lastly, market timing involves attempting to predict future market movements which is highly uncertain and not a hedging strategy.
Therefore, the use of forward contracts is the most suitable and direct strategy for managing the risk of sugar price volatility for a company with significant sugar usage like Coca-Cola.