Hedging is a risk management strategy that:

A Eliminates all risk

B Reduces exposure to price fluctuations by taking offsetting positions in related instruments

C Guarantees profits

D Only uses stocks

✓ Correct Answer: Option B

Hedging: offsetting position to reduce risk. Examples: futures to hedge commodity prices, options to protect stock holdings, forwards for currency risk. Reduces downside but may limit upside.

💡 Why is B) the correct answer?

The correct answer to the question "Hedging is a risk management strategy that:" is Option B: Reduces exposure to price fluctuations by taking offsetting positions in related instruments.

The other options — A) Eliminates all risk, C) Guarantees profits, D) Only uses stocks — are incorrect for this Pre-MBA Exam Prep question. As explained above: Hedging: offsetting position to reduce risk. Examples: futures to hedge commodity prices, options to protect stock holdings, forwards for currency risk. Reduces downside but may limit upside.

📚 About This Pre-MBA Exam Prep Practice Question

This 2-level Pre-MBA Exam Prep question from the Finance topic is part of BrainForge Quiz's free exam preparation library. Each question includes the correct answer and a detailed explanation to help you understand the underlying concept, not just memorize the answer.

How to use this page: Read the question above, consider all four options (A through D), then check the highlighted correct answer and explanation. For active timed practice, start a free Pre-MBA Exam Prep practice test or use flashcards for spaced repetition review.

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Hedging is a risk management strategy that:

✓ Correct Answer: Option B

📚 About This Pre-MBA Exam Prep Practice Question

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