Company X is a perfume manufacturer and one of its popular products involves rosewood. It is deeply concerned with the market price fluctuations of rosewood. To protect this, it enters into a contract which would allow the company to buy rosewood at a specific price at a given future date. This is an example of:

Question

Quizplus · Accepted Answer

This is an example of hedging, as the company is taking a position to protect itself from price fluctuations by entering into a contract to buy rosewood at a specific price at a given future date. This is not speculation, investment, or profit maximization.

Company X Is a Perfume Manufacturer and One of Its