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Which of the following best describes hedging? (A) Using transfer pricing between subsidiaries (B) Minimising the effects of the global business cycle (C) Protecting against fluctuating exchange rates (D) Reducing credit risks on international transactions - HSC - SSCE Business Studies - Question 9 - 2001 - Paper 1
Question 9
Which of the following best describes hedging? (A) Using transfer pricing between subsidiaries (B) Minimising the effects of the global business cycle (C) Protectin... show full transcript
Worked Solution & Example Answer:Which of the following best describes hedging? (A) Using transfer pricing between subsidiaries (B) Minimising the effects of the global business cycle (C) Protecting against fluctuating exchange rates (D) Reducing credit risks on international transactions - HSC - SSCE Business Studies - Question 9 - 2001 - Paper 1
Step 1
Which of the following best describes hedging?
Answer
Hedging is a risk management strategy used to offset potential losses in investments by taking an opposite position in a related asset. The correct choice among the options provided is:
(C) Protecting against fluctuating exchange rates.
This definition aligns well with the concept of hedging, which is typically utilized in finance to guard against risks associated with currency fluctuations in international transactions.