Compare/contrast hedge transactions with gambling

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Discussion Questions
Hedging essentially involves taking an offsetting position in a derivative so as to balance any losses and gains to the underlying asset. It is notable that hedging tries to eradicate the volatility that is associated with the price of an asset by taking counterweighing positions in contrast to what the investor has at present. Hedging is a type of derivative transaction that avoids considerable losses. Gambling and hedging contracts/transactions can be put on the same spectrum. Both of them are contracts that somehow allow individuals to avoid loss or make profits from spending future uncertainties. Some contracts, for instance wagering, are known as gambling. Some transactions, for instance insurance, may serve some genuine, valid purposes and they are protected from the prohibitions in gambling rules (Chen, 2011).
Contingencies are the events that may not happen or may actually happen in the coming months or years. A contingency gain is fundamentally a probable increase to the organization’s monetary holdings whilst contingent loss is a possible decline in the company’s economic holdings. On the fin...