CISI Professional Practice Exam 2025 – Complete Prep Guide

Question: 1 / 400

What does "hedging" aim to achieve in investment strategy?

Maximizing investment growth

Reducing exposure to securities

Offsetting potential losses in an investment

Hedging in investment strategy primarily aims to offset potential losses in an investment. This strategy involves taking a position in a related asset or using derivatives such as options or futures contracts to protect against adverse price movements. By establishing a hedge, investors can mitigate the risk of financial losses while maintaining their underlying investment. It provides a way to manage risk rather than eliminate it altogether.

While maximizing investment growth, reducing exposure to securities, and eliminating all investment risks are important concepts in investing, they do not specifically capture the essence of hedging. Hedging is primarily about risk management and protecting existing investments from volatility and downturns, rather than seeking to maximize gains or completely eradicate all forms of risk, which is often impossible in the financial markets.

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Eliminating all investment risks

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