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Home > Finance > Question

What is the purpose of hedging:

0
A) To reduce or manage risk of adverse price movements
B) To eliminate all financial losses completely
C) To increase profit without risk
D) To avoid paying taxes

Correct Answer: A) To reduce or manage risk of adverse price movements

• In corporate finance, the absolute primary purpose of hedging is To reduce or manage risk of adverse price movements. • It heavily functions like taking out an insurance policy against severe negative Market fluctuations. • The most common financial derivatives actively used for hedging are futures, forwards, and Options. • Hedging is completely distinct from speculation, where the primary goal is actively pursuing High-risk profits.

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