Explanation

The correct matching is Option C:

1. A rogue trader within an institution → Operational Risk

   • Rogue trading involves internal fraud and unauthorized activities, which fall under operational risk

2. Stock XYZ decreases in price due to a market crisis → Equity Price Risk

   • This is a specific type of market risk related to equity price movements

3. Using a put option to hedge an equity exposure → Basis Risk

   • Hedging with derivatives creates basis risk when the hedge doesn't perfectly offset the underlying exposure

4. Counterparty sues bank to avoid meeting its obligations → Legal Risk

   • Legal disputes and litigation represent legal risk

Why other options are incorrect:

• Option A: Incorrectly classifies rogue trader as business risk and hedging as strategic risk
• Option B: Incorrectly classifies rogue trader as business risk
• Option D: Incorrectly classifies stock price decrease as basis risk and hedging as credit risk

This classification follows standard risk categorization in financial institutions.