What are derivatives primarily used for in treasury management?

Derivatives are primarily used in treasury management for hedging risks or speculating, which is why this answer is the correct choice. In the context of treasury management, organizations face various financial risks related to fluctuations in interest rates, foreign exchange rates, and commodity prices. Derivatives, such as options, futures, and swaps, provide a mechanism to manage these risks.

For example, a company might use interest rate swaps to convert a variable interest rate on its debt into a fixed rate, thereby hedging against the risk of rising interest rates. Similarly, companies engaged in international trade can use currency futures to lock in exchange rates, protecting themselves from adverse movements in currency markets.

While derivatives do have some roles related to liquidity and market performance, these are secondary to their primary function in risk management. Therefore, the emphasis on using derivatives for hedging risks or speculation highlights their vital role in enabling organizations to stabilize cash flows and protect against potential financial losses.