Which statement correctly contrasts hedging with speculation?

Which statement correctly contrasts hedging with speculation?

• A. Prediction market
• B. Gambling
• C. Hedging reduces risk while speculation involves betting on uncertain outcomes to make profit
• D. Wager

Answer: (C)

Hedging is about reducing risk by taking an offsetting position so that adverse moves in one area are balanced by gains elsewhere. In sports betting or related markets, that might mean placing a bet on the opposite outcome or using a derivative to lock in a known result, which lowers potential losses from the original exposure. Speculation, by contrast, is about betting on uncertain outcomes to try to earn a profit; it accepts higher risk with the aim of growth, not protection. This contrast—risk reduction through hedging versus profit-seeking through taking on uncertainty—is what the statement communicates, making it the best description. The other terms describe markets or types of bets but don’t directly express the risk-management versus risk-taking distinction.

Hedging is about reducing risk by taking an offsetting position so that adverse moves in one area are balanced by gains elsewhere. In sports betting or related markets, that might mean placing a bet on the opposite outcome or using a derivative to lock in a known result, which lowers potential losses from the original exposure. Speculation, by contrast, is about betting on uncertain outcomes to try to earn a profit; it accepts higher risk with the aim of growth, not protection. This contrast—risk reduction through hedging versus profit-seeking through taking on uncertainty—is what the statement communicates, making it the best description. The other terms describe markets or types of bets but don’t directly express the risk-management versus risk-taking distinction.