Derivatives Can Be Used to Either Hedge or Speculate

question 17

Multiple Choice

Derivatives can be used to either hedge or speculate. These actions:

• A) increase risk in both cases.
• B) decrease risk in both cases.
• C) spread or minimize risk in both cases.
• D) offset risk by hedging and increase risk by speculating.
• E) offset risks by speculating and increase risk by hedging.

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Definitions:

Equity Securities

Equity securities are financial instruments that signify an ownership interest in a company or entity and may provide income through dividends or the potential for capital gains.

Low Risk

Referring to investments, strategies, or situations that have a minimal chance of loss or failure.

Trading Investment

Short-term holdings of financial assets aimed at generating profits from short-term fluctuations in price or dealer's margin.