______ is a risk management strategy employed to offset losses in investments by taking an opposite position in a related asset.

Question

Question

This question was previously asked in

SSC GD 17 Nov 2021 Shift 2 (Official Paper)

Answer 1

The correct answer is Hedging.

Key Points

Hedging is a risk management strategy employed to offset losses in investments by taking an opposite position in a related asset.
The reduction in risk provided by hedging also typically results in a reduction in potential profits.
Hedging requires one to pay money for the protection it provides, known as the premium.

Important Points

Scalability
- Scalability, whether it be in a financial context or within a context of business strategy, describes a company's ability to grow without being hampered by its structure or available resources when faced with increased production.
Amortization
- Amortization typically refers to the process of writing down the value of either a loan or an intangible asset.
- Amortization schedules are used by lenders, such as financial institutions, to present a loan repayment schedule based on a specific maturity date.
Collateral
- Collateral is an item of value that a lender can seize from a borrower if he or she fails to repay a loan according to the agreed terms.
- One common example is when you take out a mortgage. Normally, the bank will ask you to provide your home as collateral.