How Does Hedging Affect the Flow of Funds in the Financial

question 104

Multiple Choice

How does hedging affect the flow of funds in the financial system?

• A) It reduces it since it is a sign that investors do not like risk.
• B) It reduces it because it increases risk by encouraging speculation.
• C) It increases it because it reduces risk thus encouraging more people to make financial investments.
• D) It increases it by encouraging more speculation.

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Definitions:

Establish Monopolies

The process or outcome of a single company gaining exclusive control over a commodity or service, often viewed negatively due to the potential for abuse of power.

Sweatshops

Workplaces, often in the manufacturing sector, that have poor working conditions, unfair wages, unreasonable hours, and may involve child labor.

Dodd-Frank Act

Formally known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, a comprehensive piece of financial reform legislation passed in 2010, aimed at reducing risks in the U.S. financial system.