A Riskless Hedge Can Best Be Defined as

question 28

Multiple Choice

A riskless hedge can best be defined as

• A) A situation in which aggregate risk can be reduced by derivatives transactions between two parties.
• B) A hedge in which an investor buys a stock and simultaneously sells a call option on that stock and ends up with a riskless position.
• C) Standardized contracts that are traded on exchanges and are "marked to market" daily,but where physical delivery of the underlying asset is virtually never taken.
• D) Two parties agree to exchange obligations to make specified payment streams.
• E) Simultaneously buying and selling a call option with the same exercise price.

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Definitions:

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