Sometimes Spreading Has an Advantage Over Hedging to Lower Risk

question 104

Multiple Choice

Sometimes spreading has an advantage over hedging to lower risk because:

• A) it can be difficult to find assets that move predictably in opposite directions.
• B) it is cheaper to spread than hedge.
• C) spreading increases expected returns, hedging does not.
• D) spreading does not affect expected returns.

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Definitions:

Perfect Competition

A market structure characterized by a large number of small firms, a homogeneous product, freedom of entry and exit, and perfect information, leading to price-taking behavior.

Internet

A global network of interconnected computer networks that use the standard Internet protocol suite (TCP/IP) to link billions of devices worldwide.

Profit-Maximizing

Profit-Maximizing refers to a company's goal of achieving the highest possible profit through adjusting production levels, pricing strategies, and other operational decisions.

Loss-Minimizing

A strategy or approach aimed at reducing losses to the lowest possible level under adverse conditions.