Question

Hedging in financial markets primarily aims to reduce the:

• A. Business risk
• B. Unsystematic risk
• C. Market risk
• D. Country risk

Hint:

Hedging strategies are designed to protect investments from market-wide price volatility.

Answer 1

The Correct Option is C

Hedging is a risk management strategy used in financial markets to minimize or offset the risk of adverse price movements.
The primary objective of hedging is to reduce market risk (also called systematic risk), which arises due to overall market fluctuations affecting the value of investments.
Explanation of Other Options:

(A) Business risk: Related to internal company operations, not directly addressed by hedging.
(B) Unsystematic risk: Specific to a company or industry, usually reduced by diversification.
(D) Country risk: Related to political or economic instability in a country.
Thus, hedging mainly protects against market risk caused by broad market movements.