Hedging an asset with contracts written on a similar, but not identical, asset is called:
A) Primary trading.
B) Open trading.
C) Open-hedging.
D) Hedging.
E) Perfect-hedging.

Question

Quizplus · Accepted Answer

Hedging involves using financial instruments to reduce or manage the risk of adverse price movements in an asset. When the contracts used for hedging are written on a similar, but not identical, asset, it's still considered hedging, albeit not perfect hedging. Perfect hedging would imply a perfect negative correlation with the asset being hedged, which is not the case here.

Hedging an Asset with Contracts Written on a Similar, but Not