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      Question

      If a company uses derivatives to protect itself from

      price fluctuations, the strategy is known as:
      A Speculation Correct Answer Incorrect Answer
      B Hedging Correct Answer Incorrect Answer
      C Arbitrage Correct Answer Incorrect Answer
      D Leveraging Correct Answer Incorrect Answer

      Solution

      β€’ Hedging reduces or eliminates risk. β€’ Derivatives like futures/options/swaps lock or insure prices. Speculation ↑ risk; arbitrage exploits mispricing; leveraging increases exposure.

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