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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) Protect... 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 refers to the practice of protecting against potential financial losses due to fluctuations in market conditions. In this context, the option that best describes hedging is:
(C) Protecting against fluctuating exchange rates.
Hedging is commonly used in finance to manage the risk associated with unpredictable changes in exchange rates, which can significantly affect international transactions and investments.