Which of the following is the best definition of Hedging?
A) Long-term financial risk arising from permanent changes in prices or other economic fundamentals.
B) A legally binding agreement between two parties calling for the sale of an asset or product in the future at a price agreed upon today.
C) A forward contract with the feature that gains and losses are realized each day rather than only on the settlement date.
D) Reducing a firm's exposure to price or rate fluctuations.
E) An agreement that gives the owner the right, but not the obligation, to buy or sell a specific asset at a specific price for a set period of time.

Question

Quizplus · Accepted Answer

Hedging is a strategy used to minimize or manage risk by taking positions that offset potential losses in investments. It aims to reduce the uncertainty of future price movements, thus protecting against price or rate fluctuations.

Which of the Following Is the Best Definition of Hedging