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CFA Level 1
Derivatives

Understanding Uses of Derivatives

Hard Derivative Markets And Instruments Uses Of Derivatives

Investors use derivatives for various reasons, including hedging, speculation, and arbitrage. An investor is considering entering into a futures contract to hedge against potential adverse price movements in a commodity they need for production. They believe that the price of this commodity is likely to increase in the near future. Based on this scenario, which of the following statements best describes the investor's use of derivatives?

Hint

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