Which of the Below Statements Is TRUE

question 49

Multiple Choice

Which of the below statements is TRUE?

• A) A put option can be used to protect against a rise in the price of the underlying instrument while maintaining the opportunity to benefit from a decline in the price of the underlying instrument.
• B) Hedging with options never differ from hedging with futures.
• C) Hedging with futures involves trading off the benefits of a favorable price movement for protection against an adverse price movement.
• D) None of these

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Definitions:

Purchasing Power

The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy.

Market Demand Curve

A graphical representation showing the quantity of a good that consumers are willing and able to purchase at different price points, holding other factors constant.

Horizontal Sum

The process of adding the quantities demanded by all individuals at different price levels to determine the total market demand at each price.

Vertical Sum

A concept typically used in the context of aggregating demand curves, where the quantities at each price level are summed vertically across different consumers or markets.