Which one of the following terms is used in Economics to denote a technique for avoiding a risk by making a counteracting transaction ?

In economics and finance, hedging is a risk management technique used to reduce or offset the risk of adverse price movements in an asset. It involves taking a counteracting or opposite position in a related financial instrument, such as a derivative, to protect against future price fluctuations and uncertainties [1]. For instance, importers and exporters use hedging to manage exchange rate risks, while farmers use it for agricultural commodity price stability [1]. Common hedging instruments include futures, options, swaps, and forward contracts. Unlike speculation, the primary goal of hedging is to minimize potential losses rather than maximize gains, effectively acting as a form of insurance for a portfolio. Other terms like dumping refer to international trade price discrimination, while discounting relates to present value calculations, and deflating refers to adjusting for general price level decreases [2].

Sources

1. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 8.14 Indian Economy > p. 270
2. [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > There are mainly two causes of inflation: > p. 113