Question

Price risk is the risk of a decline in the value of a security or a portfolio. How can one transfer price risk?

A Arbitrage Correct Answer Incorrect Answer
B Speculation Correct Answer Incorrect Answer
C Hedging Correct Answer Incorrect Answer
D A and C Correct Answer Incorrect Answer
E All the above Correct Answer Incorrect Answer

Solution

Hedging means reducing or controlling risk. This is done by taking a position in the futures market that is opposite to the one in the physical market with the objective of reducing or limiting risks associated with price changes.

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