To hedge against rising oil prices, the company should buy an oil futures contract, ensuring it can purchase oil at a fixed price in the future.

Options give the holder the right, but not the obligation to buy (call option) or sell (put option) an underlying asset at a predetermined price before a set expiration date.

A forward contract is a private, over-the-counter (OTC) agreement between two parties to buy or sell an asset at a future date for a fixed price.

Credit Default Swaps (CDS) are financial contracts that function as insurance against a borrower’s default on debt (such as corporate or government bonds).

If interest rates decrease, the investor should pay floating and receive fixed to benefit from lower floating payments while receiving a higher fixed rate.

Derivatives are used to hedge risks (e.g., currency risk, interest rate risk) and aid in price discovery, making financial markets more efficient.

Leverage allows investors to control large positions with a small initial investment, amplifying both profits and losses, making derivatives riskier.

A currency forward contract helps companies lock in exchange rates for future transactions, protecting against fluctuations in foreign exchange rates.

A put option gives the right (but not obligation) to sell an asset at a set price within a specified time frame, often used to hedge against declining prices.