A jeweler has a forward contract to reduce the risk of fluctuation in gold prices in the future.Identify the risk reduction strategy involved.

Question

Quizplus · Accepted Answer

Hedging is the strategy used to reduce or eliminate the risk of price fluctuations in assets such as gold. By entering into a forward contract, the jeweler locks in a future price for gold, thus protecting against potential adverse price movements.

A Jeweler Has a Forward Contract to Reduce the Risk