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Financial Risk Reduction

How do options reduce a firm's financial risk? Under what circumstances would you recommend options as a risk-reducing strategy? (Examples)

Solution Preview

Options helps in reducing the financial risk as it enables to hedge the portfolio or open positions in the market.Option contracts allow to run the profits while restricting your downside risk.

Recommendations

A call option is the right, but not the obligation, to buy the stock at a specified price, up to the expiration date. Call options are like ...

Solution Summary

The solution discusses the use of options as a way to reduce financial risk.

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