Tries to make profit from a price change, seeks to profit from betting on the direction an asset will be moving. Uses risk to try and make larger profits.

• A. Hedging
• B. Speculation
• C. Arbitrage
• D. Diversification

Answer: (B)

Speculation is about taking on risk to profit from changes in asset prices by betting on which direction prices will move. When someone speculates, they anticipate price movement and place positions that will gain if prices go up or down, often using leverage to magnify both potential gains and potential losses. This matches the description of aiming to profit from a price change and using risk to try for larger profits.

Hedging, in contrast, is about reducing risk—locking in prices or offsets to protect against adverse moves rather than trying to profit from them. Arbitrage involves exploiting price differences across markets with little or no risk, not betting on a direction to magnify profits. Diversification spreads risk across many assets to reduce overall exposure, not to chase large gains from a single price move.