Question

What is the purpose of using derivatives in hedging risks?

a.

To increase financial risks

b.

To speculate on market conditions

c.

To avoid or reduce financial risks

d.

To add intrinsic value to contracts

Posted under IC 89 Management Accounting

Answer: (c).To avoid or reduce financial risks Explanation:Derivatives are used by those who want to avoid or reduce financial risks, providing a mechanism to deal with others willing to take risks for potential rewards.

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