Suppose you are a manager for a company that produces grape jelly.Which of the following is the best way for you to reduce your risk?
A) acquire a derivative that increases in value if grape prices increase
B) acquire a derivative that increases in value if grape jelly prices increase
C) sell a derivative that increases in value if grape prices increase
D) sell a derivative that increases in value if grape jelly prices increase

Question

Quizplus · Accepted Answer

Acquiring a derivative that increases in value if grape prices increase helps hedge against the risk of rising grape prices, which directly impacts the cost of production for grape jelly. This strategy provides financial compensation if grape prices rise, offsetting the increased costs.

Suppose You Are a Manager for a Company That Produces