Why is hedging using derivatives termed “risk transfer”?

A: One key motivation for derivatives is to enable the transfer of risk between individuals
and firms in the economy. This can be viewed as being like insurance, with the difference
that anyone in the economy (and not just insurance companies) would be able to sell
insurance. A risk averse person buys insurance; a risk–seeking person sells insurance.
On an options market, an investor who tries to protect himself against a drop in the
index buys put options on the index, and a risk-taker sells him these options.
One special motivation which drives some (but not all) trades is mutual insurance
between two persons, both exposed to the same risk, in an opposite way. In the context
of currency fluctuations, exporters face losses if the rupee appreciates and importers face
losses if the rupee depreciates. By forward contracting in the dollar-rupee forward market,
they supply insurance to each other and reduce risk. This is a situation where both parties
in the transaction seek to avoid risk.
In these ways, derivatives supply a method for people to do hedging and reduce their
risks. As compared with an economy lacking these facilities, this is a considerable gain.
The largest derivatives markets in the world are on government bonds (to help control
interest rate risk), the market index (to help control risk that is associated with fluctuations
in the stock market) and on exchange rates (to cope with currency risk).