Which of the following is not a technique of hedging ?

The correct answer is - Spot

Key Points

• Spot transactions are not considered a hedging technique.
  • Spot transactions involve immediate settlement of currency or asset trades at the current market price.
  • Unlike hedging tools like swaps, options, and futures, spot transactions do not allow for managing future price risks.
  • Hedging focuses on mitigating or offsetting potential losses due to price fluctuations, whereas spot transactions focus on immediate trade execution.
  • Spot transactions are commonly used in trading and investments but are unrelated to hedging strategies.

Additional Information

• Swaps
  • A swap is a financial agreement between two parties to exchange cash flows or liabilities to hedge against interest rate or currency risks.
  • Swaps are widely used by institutions to stabilize cash flows or manage financial uncertainties.
• Options
  • An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price before a specified date.
  • Options are effective for hedging against potential adverse price movements in underlying assets.
• Futures
  • Futures contracts obligate the buyer or seller to trade an asset at a predetermined price on a future date.
  • They are commonly used to hedge against price volatility in commodities, currencies, and financial instruments.