Unlike Hedging with Futures, Hedging with Options

question 15

Multiple Choice

Unlike hedging with futures, hedging with options

• A) locks in a particular price or rate of return for a hedger.
• B) exposes a hedger to a risk of large losses.
• C) allows a hedger to benefit from the upside potential of his spot position.
• D) is free (i.e., creating the hedge is costless)
• E) both b and c

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Definitions:

Spinal Cord

The cylindrical bundle of nerve fibers and associated tissue that is enclosed in the spine and connects nearly all parts of the body to the brain, forming the central nervous system.

Central Nervous System

The part of the nervous system consisting of the brain and spinal cord, responsible for processing and sending out information.

Peripheral Nervous System

The part of the nervous system outside the brain and spinal cord, connecting the central nervous system to limbs and organs.

Knee-Jerk Reflex

A reflexive action in which the knee extends (jerks) automatically when the patellar tendon is tapped, assessed in neurological examinations.