What is hedging?
A) It is a method of leveraging returns when a company has foreign currency receivables or payables or has outstanding commitments that will be affected by changes in market prices.
B) It is a system for investing in financial instruments such that the entity is guaranteed increased returns and lower risks.
C) It is any activity, entered into by the entity, designed to increase returns and reduce risk.
D) It is an action taken with the object of avoiding or minimising possible adverse effects of movements in things such as exchange rates or market prices.

Question

Quizplus · Accepted Answer

Hedging is the act of taking action to prevent or minimize any negative impacts of market fluctuations, such as exchange rate or market price movements. It is a risk management strategy used by companies to reduce financial exposure to potential losses. Hedging usually involves the use of financial instruments such as futures, options, and swaps to offset potential losses in a portfolio.

What Is Hedging