[blank] is a contract that involves compensation for specific potential future losses in exchange for periodic payments and that provides for the transfer of the risk of a loss, from one entity to another, in exchange for a premium.

Question

Quizplus · Accepted Answer

The definition perfectly matches the concept of insurance, which involves compensation for potential future losses in exchange for periodic payments (premiums) and the transfer of risk from the insured to the insurer. Forward and spot contracts are financial instruments used for buying or selling assets, while hedging refers to strategies used to minimize risk.

[Blank] Is a Contract That Involves Compensation for Specific Potential