If Managers Are Rational, They Will Only Hedge When They

question 85

Multiple Choice

If managers are rational, they will only hedge when they perceive that:

• A)prices are headed in an adverse direction.
• B)derivative instruments are priced lower than actual value.
• C)risk reduction is preferable to higher potential profits.
• D)they can increase their profitability by doing so.

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Definitions:

Human Problems

Issues or challenges faced by individuals or societies that affect well-being or social functioning.

Potential Causal Relationship

A relationship between two variables where changes in one variable potentially cause changes in the other but have not been definitively proven.

Hypothesis

A hunch or prediction that certain variables are related in certain ways.

Incidence

The number of new cases of a disorder occurring in a population over a specific period of time.