Question

In regards to commodities, what best defines hedging?

(a) Taking no action

(b) The act of buying and selling stock

(c) The act of protecting yourself against price possibilities

(d) The act of buying and selling commodities

This question was addressed to me at a job interview.

My question is based upon Dairy Facts in section Dairy Laws of Dairy Engineering

Answer 1

The correct option is (c) The act of protecting yourself against price possibilities

Explanation: A hedge is an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract. Hedging deals with act of buying and selling stocks.