Hedging Risk and Spreading Risk Are Two Ways To

question 98

Multiple Choice

Hedging risk and spreading risk are two ways to:

• A) increase expected returns from a portfolio.
• B) diversify a portfolio.
• C) lower transaction costs.
• D) match up perfectly positively correlated assets.

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Definitions:

Monopolistic Competition

A market structure characterized by many firms selling products that are substitutes but not perfect substitutes, leading to some degree of market power for each firm.

Cournot Duopoly

A market situation where two firms compete with one another by deciding on output quantity with the assumption that the other's decision remains constant.

Rivals

Competitors within the same market that vie for customers and market share by offering similar goods or services.

Reaction Curve

Relationship between a firm’s profit-maximizing output and the amount it thinks its competitor will produce.