If Investors Speculate in the Underlying Asset Rather Than in Derivative

question 22

Multiple Choice

If investors speculate in the underlying asset rather than in derivative contracts on the underlying asset, they will probably achieve ____ returns, and they are exposed to relatively ____ risk.

• A)lower; lower
• B)lower; higher
• C)higher; lower
• D)higher; higher

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Definitions:

Usage Of Trade

Established customs and practices in a particular industry that are considered to be an understood part of business agreements.

Sequence

An ordered list or arrangement of items, events, or actions following a specific logical or systematic pattern.

Predominant Factor Test

A legal doctrine used to classify a transaction within the framework of the Uniform Commercial Code (UCC) by determining the main purpose of the contract.

Liberally Administered

A principle or policy applied in a manner that is flexible, generous, or not strictly in accordance with strict rules or formalities.