What is the term for using financial instruments to manage exposure to market risk?

The correct term for using financial instruments to manage exposure to market risk is financial hedging. Financial hedging involves entering into contracts or using financial instruments such as options, futures, and swaps to offset potential losses in investments due to market fluctuations. This practice allows companies and investors to protect themselves against adverse movements in asset prices, interest rates, currencies, and other financial variables that could impact their financial positions.

While market risk management might encompass a broader umbrella of strategies and processes aimed at identifying, assessing, and mitigating risks to investments, the specific strategy of using financial instruments to reduce exposure directly falls under financial hedging. Investment strategy refers to the overall plan for achieving financial goals, and risk assessment involves identifying and evaluating risks but does not necessarily include the specific actions taken to mitigate those risks.