Which of the following statements is true about hedging in finance?

Hedging is a risk management strategy used in finance to offset potential losses or gains that may be incurred by an investment. By utilizing hedging, an investor or business can take measures to protect against adverse price movements in the market. For example, if a farmer is concerned about the price of crops falling, they might enter into a hedging contract to lock in prices, thereby minimizing the risk of financial loss from price declines.

This strategy does not guarantee profits, nor does it apply only to agricultural commodities, as it can be used across various financial markets, including stocks, bonds, and foreign exchange. Additionally, rather than increasing market volatility, hedging aims to create a more stable investment environment by reducing the impact of severe price fluctuations. This makes the statement regarding hedging's role in offsetting risks in the market the accurate choice.