Hedging is a risk management strategy that involves insuring against risks a firm is likely to face, typically through buying derivatives or other financial instruments. This allows a firm to limit its exposure to potential losses and protect against unfavorable market movements. Buying a firm's own stock or monitoring hedge levels would not be considered hedging strategies.

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Hedging Is

Question 91

Multiple Choice

Hedging is

A) Buying derivatives to take advantage of likely changes in the market
B) Buying stocks firm's own stock
C) Insuring against risks a firm likely faces
D) Making sure that the hedges are not too high at the firm's headquarters

Correct Answer: