Sometimes Spreading Has an Advantage Over Hedging to Lower Risk

question 104

Multiple Choice

Sometimes spreading has an advantage over hedging to lower risk because:

• A) it can be difficult to find assets that move predictably in opposite directions.
• B) it is cheaper to spread than hedge.
• C) spreading increases expected returns, hedging does not.
• D) spreading does not affect expected returns.

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Definitions:

Technological Improvements

Advances or enhancements in technology that increase efficiency, productivity, or utility in various sectors.

Fracking

A method of extracting oil and natural gas from underground rock formations by injecting a mixture of water, sand, and chemicals at high pressure.

Natural Gas Industry

The sector of the economy that involves the exploration, extraction, processing, and selling of natural gas.

Incentives

Rewards or penalties that motivate individuals or entities to act in specific ways.