A(n)[blank] is a financial instrument that can be used to hedge the effect of both favourable and unfavourable price movements.

Question

Quizplus · Accepted Answer

Futures contracts are financial instruments that allow the buyer to lock in a price for a commodity or financial asset at a future date. This can be used to hedge against the risk of price movements, whether they are favourable (locking in a low price) or unfavourable (locking in a high price). Calls and puts are options contracts that give the holder the right, but not the obligation, to buy or sell an asset at a certain price, but they only protect against unfavourable price movements. Convertible securities are a type of bond that can be converted into shares of stock, but they do not provide hedging against price movements.

A(n)[blank] Is a Financial Instrument That Can Be Used to Hedge