Question

Governments typically engage in derivative transactions not to speculate, but rather, to reduce the overall investment risk. True or False?

Answer 1

True. Governments typically engage in derivative transactions not to speculate, but rather, to reduce the overall investment risk.

Step-by-step explanation:

True.

Governments typically engage in derivative transactions not to speculate, but rather, to reduce the overall investment risk. Derivatives are financial instruments whose value is derived from the underlying assets, such as bonds or stocks. They can be used to hedge against potential losses or to manage risk exposure.

For example, governments may use derivatives to hedge against fluctuations in foreign exchange rates or interest rates, which can help reduce the overall investment risk.