Discussion
..................... is a mechanism to reduce price risk inherent in open position.
Answer: B
The mechanism is hedging.
An open position is an exposure that will gain or lose as prices move. Hedging takes an offsetting position, usually in forwards, futures or options, so that a loss on the original exposure is matched by a gain on the hedge and the price risk is reduced.
A swap is one particular contract that can be used for hedging, not the general mechanism. A customised contract describes a forward's form, not its purpose. Squaring off means closing an open position by an opposite trade; it ends the exposure rather than protecting it while it is held.
No comment is present. Be the first to comment.
Loading…
Post your comment
Please log in or register to post a comment.
Examination Categories
- SSC Exams
- Banking Exams
- Teaching Exams
- Civil Services Exams
- Railways Exams
- Engineering Recruitment Exams
- Defence Exams
- State Government Exams
- Police Exams
- Insurance Exams
- Nursing Exams
- Other Government Exams
- NRA CET
- PG Entrance Exams
- Campus Placement
- MBA Entrance Exams
- CUET and UG Entrance
- Judiciary Exams
- Regulatory Body Exams
- Software Development