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.

---

Definitions:

Proposed Merger

A plan or intent to combine two or more companies into one.

Oligopoly

A market structure characterized by a small number of firms that control the market, leading to limited competition.

Perfectly Competitive

Refers to a market structure where numerous small firms compete against each other, and no single firm can influence the market price of goods or services.

Monopolistically Competitive

A market structure where many firms sell products that are similar but not identical, providing some degree of market power to each firm.