A derivative can be used to increase your risk exposure can be used to decrease

Question

A derivative

can be used to increase your risk exposure

can be used to decrease your risk exposure

can be used to both increase or decrease your risk depending on how you use it and what other assets or positions you might have

can never be used to alter your existing risk exposure

can be used to increase your risk exposure

can be used to decrease your risk exposure

can be used to both increase or decrease your risk depending on how you use it and what other assets or positions you might have

can never be used to alter your existing risk exposure

Explanation / Answer

Answer: Option A

A derivative can be used to decrease your risk exposure.Derivatives can be used to mitigate the risk of economic loss arising from changes in the value of the underlying. This activity is known as hedging.

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