The Key Criterion for Qualifying as a Hedge Is That

question 20

Multiple Choice

The key criterion for qualifying as a hedge is that the hedging relationship:

• A)Must be highly effective in achieving offsetting changes in fair values or cash flows.
• B)Must have predictable results.
• C)Must have fixed outcomes.
• D)None of these.

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Definitions:

Low Risk Assets

Financial assets that are deemed to carry a low chance of losing value, typically offering lower potential returns.

High Risk Assets

Investments that offer the potential for higher returns but come with a greater possibility of loss.

Return

The process of bringing back a purchased product to the seller or store, often for a refund or exchange.

Monopoly Firm

A company that is the sole provider of a product or service in a market, resulting in a lack of competition.