Risk exposure due to heavy short-term borrowing can be compensated for by:

A. carrying more receivables to increase cash flow.
B. carrying highly liquid assets.
C. carrying illiquid assets.
D. carrying longer term, more profitable current assets.

carrying highly liquid assets.

To determine the correct answer, let's consider the question and each of the answer choices.

The question states that risk exposure due to heavy short-term borrowing needs to be compensated for. This implies that there is a need to reduce risk or the negative effects of heavy short-term borrowing.

Let's now analyze each of the answer choices:

A. Carrying more receivables to increase cash flow: This answer does not directly address the risk exposure due to heavy short-term borrowing. Increasing receivables may improve cash flow, but it does not necessarily reduce the risk associated with heavy borrowing.

B. Carrying highly liquid assets: This option seems promising. By carrying highly liquid assets, a company can easily convert those assets into cash if needed, which can help mitigate the risk of heavy short-term borrowing. The availability of liquid assets provides a buffer to cover unexpected financial obligations.

C. Carrying illiquid assets: Carrying illiquid assets can exacerbate the risk exposure due to heavy short-term borrowing. Illiquid assets cannot be easily converted into cash, so they do not provide the necessary flexibility to handle the financial risks.

D. Carrying longer-term, more profitable current assets: While longer-term, more profitable current assets may generate higher returns, they do not necessarily compensate for the risk exposure of heavy short-term borrowing. Depending on the specific circumstances, these assets may not be easily liquidated or accessible to cover short-term financial obligations.

Based on this analysis, the best answer appears to be B. Carrying highly liquid assets. By holding highly liquid assets, a company can have the necessary resources to reduce the risk exposure caused by heavy short-term borrowing.

Remember, it's always important to carefully evaluate each answer choice and consider the specific context of the question to arrive at the most accurate answer.

The correct answer is B. carrying highly liquid assets.

When a company heavily relies on short-term borrowing, it exposes itself to the risk of not being able to repay the borrowed funds in a timely manner. To compensate for this risk exposure, the company can hold highly liquid assets.

Highly liquid assets, such as cash, marketable securities, or short-term investments, can be easily converted into cash when needed. By holding these assets, the company has readily available funds to meet its short-term debt obligations and reduce the risk of default.

Therefore, carrying highly liquid assets helps mitigate the risk associated with heavy short-term borrowing.