Which of the Following Is the Best Definition of Hedging

question 87

Multiple Choice

Which of the following is the best definition of Hedging?

• A) Long-term financial risk arising from permanent changes in prices or other economic fundamentals.
• B) A legally binding agreement between two parties calling for the sale of an asset or product in the future at a price agreed upon today.
• C) A forward contract with the feature that gains and losses are realized each day rather than only on the settlement date.
• D) Reducing a firm's exposure to price or rate fluctuations.
• E) An agreement that gives the owner the right, but not the obligation, to buy or sell a specific asset at a specific price for a set period of time.

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Definitions:

Equity Method

An accounting technique used for recording investments in which the investor has significant influence over the investee, typically between 20% and 50% ownership.

Disposal of Equipment

The process of getting rid of fixed assets or equipment which is no longer useful or needed through sale, trade, or recycling.

Treasury Stock

Shares that were issued and subsequently repurchased by the issuing company, reducing the amount of outstanding stock on the open market.

Depreciation Expense

Depreciation Expense is the allocation of the cost of a tangible asset over its useful life, reflecting wear and tear, obsolescence, or other decline in value.