Using Options to Reduce Risk Is Called

question 21

Multiple Choice

Using options to reduce risk is called:

• A)speculation.
• B)a naked position.
• C)hedging.
• D)a covered position.
• E)risk-taking.

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Definitions:

Copper Futures

Contracts to buy or sell copper at a predetermined price on a specified future date.

Futures Price

The agreed-upon price for the future sale or purchase of an asset in a futures contract, determined in the futures market.

Counterparty Risk

The risk that the counterparty to a transaction will not be able to make required payments when due.

Derivatives Contract

A financial agreement between parties whose value is based on, or derived from, an underlying financial asset, rate, or index.