Financial derivatives are used by companies as a tool to manage risks. Group of answer choices...

Financial derivatives are used by companies as a tool to manage risks.

Group of answer choices

True

False

Expert Solution

True

Financial derivative is a tool used by the companies to manage the risk. In simple word, it is used to hedge the risk which is being faced by the company.

Hedge instruments are one of the categories of financial derivatives mostly used to reduce the risk level attached with the underlying transactions. Hedgers protect their assets or liabilities from the adverse change by entering into derivative contract.

Therefore, financial derivative play key role for managing risk. The efficient use of financial derivatives reduces risk level and increases rate of return. Thus, it is improving the financial health of business.

jeff jeffy answered 2 years ago

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