Which of the Following Statements Regarding Insurance and Hedging Is

question 37

Multiple Choice

Which of the following statements regarding insurance and hedging is true?

• A)Both insurance and hedging deal with pure risks.
• B)Insurance reduces objective risk while hedging involves only risk transfer and not risk reduction.
• C)Hedging reduces objective risk while insurance involves only risk reduction and not risk transfer.
• D)Both insurance and hedging reduce risk but do not involve the transfer of risk.

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Definitions:

Quasi Contract

An obligation imposed by law to prevent unjust enrichment, even though no actual contract exists between the parties involved.

Specific Performance

A legal remedy requiring a party to perform a specific act, often the fulfillment of contractual obligations, as opposed to paying damages.

Gross Negligence

An extreme lack of care that demonstrates a willful or reckless disregard for the safety or lives of others, significantly beyond ordinary negligence.

Willful Misconduct

Intentional wrongdoing or reckless disregard for the safety and rights of others.