Hedging Is Accomplished by Holding Contracts or Securities Whose Payoffs

question 37

True/False

Hedging is accomplished by holding contracts or securities whose payoffs are positively correlated with some risk exposure that already exists.

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Definitions:

Merchandise

Goods that are purchased, stored, and sold by a business in the ordinary course of its operations, often referred to as inventory.

Gross Profit Rate

The gross profit rate, also known as gross profit margin, is the ratio of gross profit (sales minus cost of goods sold) to sales, expressed as a percentage.

Merchandise Available

The total quantity of goods available for sale, including beginning inventory plus purchases made during the period.

Estimated Gross Profit

An approximate calculation of a company's gross profit, predicted based on past data and future projections.