Which of the Following Is the Best Definition of Hedging

question 123

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:

Mutually Exclusive

A statistical term describing events that cannot occur simultaneously; the occurrence of one event excludes the possibility of the other.

Events

Occurrences or happenings, often of significance and usually discrete, that can be observed and recorded.

Continuous Random Variable

A type of random variable that can take an infinite number of values within a given range.

Outcomes

The possible results or consequences of an experiment or situation.