A UK based firm that has business in the United States takes offsetting positions in certain securities to eliminate the dollar exposure of its sales in the USThis method of risk management is referred to as _____.

Question

Quizplus · Accepted Answer

This is because hedging refers to the practice of taking offsetting positions in securities or other financial instruments to reduce or eliminate the risk of loss from adverse movements in market prices or exchange rates. In this case, the UK based firm is using hedging to eliminate its exposure to fluctuations in the dollar exchange rate and thereby manage its risk effectively. Arbitraging involves taking advantage of price differentials in different markets to earn a profit, speculating involves taking a position in a security with the expectation of profiting from its price movement, and scalping involves making multiple trades in a short period of time to profit from small price movements.

A UK Based Firm That Has Business in the United