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.

    Practice Next

    Relevant for Exams: