💼 Pre-MBA Exam Prep

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.

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