hedging & speculation

Hedging and Speculation
Name
Institution of Affiliation
Hedging and speculating
Explain the Difference between “Hedging” And “Speculating” by Explaining why someone who Wishes to “Hedge” Against Inflation Might Choose to Purchase Gold
Television commercials talking about purchasing gold are common. People wonder whether the whole thing is a scam or a genuine investment. Regardless of the venture option someone chooses, according to the book, “it is substantial to distinguish between trading for profit (speculating) and locking in a position (hedging)” (Block, Hurt, & Danielse, 2017, p. 668).
Hedging is a strategy that eliminates the volatile nature of the value of an asset. It takes an offsetting stand in a derived value. The aim is to balance the achievements and losses that characterize the underlying asset. Hedges help in reducing the risk by adopting an opposing position in the market area where they are hedging. On the other hand, speculation targets gains that can be realized from betting on the price changes based on the direction the asset moves.
During periods of inflation, goods become expensive and are sold above economically permissible rates. During these times, equity and debt are not categorized under good investment options. Investors fear purchasing assets at extraordinary rates because during these times, they are underperforming. Investors buy gold to hedge against higher inflation rates because historically, it performs well even under inflationary conditions.

Explain why someone who Wishes to “Speculate” Might Also Choose to Purchase Gold
Speculators invest in gold because it is an effective way of making profits based on assumption. When gold prices increase significantly compared to other assets such as debt instruments and equity, or when its value remains stable while that of other assets decrease, people purchase gold and sell it later to make gains.
Relate the Motivations of “Hedging” and “Speculating” to the Topic of Christianity.
Christians believe that money can be put to good use as opposed to the gold market. In the book of Psalms in the English Standard Version of the Bible, it is written that “put your trust in princes, in the son of man, in whom there is salvation” (English Standard Version, Psalms 146:3). In this regard, human beings should not put their money and trust in the gold market where what will happen in the future remains unknown. Alternatively, they should use their money appropriately to serve God. The bible considers betting and gambling on the market’s future evil. Hebrews 13:5 states that “people should keep their lives free from the love of money, and be content with what they have for God said he will never leave his people, nor forsake them (English Standard Version, Hebrews 13.5)”. Human beings should trust in God and not gamble on unsure future events.
References
Block, S., Hirt, G., & Danielsen, B. (2017). Foundations of Financial Management (16th Ed.). Boston, MA: McGraw-Hill Custom.
English Standard Version. Biblica, 2011. BibleGateway.com