Hedging Through Futures Contracts

question 36

Multiple Choice

Hedging through futures contracts:

• A)increases risk of loss if prices fall.
• B)eliminates profit maximization potential.
• C)is considered to be speculative in nature.
• D)All of the above

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Definitions:

Preferred Stock

A class of ownership in a corporation with a stated dividend that must be paid before dividends to common stockholders.

Treasury Stock

Shares that were once part of the outstanding shares of a company but were bought back and held in the company's treasury.

U.S. Treasury Department

The federal department responsible for managing government revenue, producing money, and formulating fiscal policy in the United States.

Outstanding Shares

The total number of shares of a corporation's stock that are currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares.