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