When an Investment Banker Hedges a Stock for Initial Distribution

question 31

Multiple Choice

When an investment banker hedges a stock for initial distribution with stock index futures,

• A)the underwriter intends to reduce the risk of loss during the distribution period.
• B)there is potential of gain or loss on both the stock and the stock index futures.
• C)he or she sells futures contracts.
• D)All of the above

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Definitions:

Tradable Emissions Permits

Rights to emit a specific amount of a pollutant that can be bought and sold, used as a market-based approach to controlling pollution.

Supply and Demand

Supply and demand are economic principles describing the relationship between the quantity of a commodity available and the quantity that consumers are willing and able to purchase.

Permit Price

The cost associated with acquiring a license or permit to engage in a certain activity or operation, often seen in environmental regulations or zoning laws.

Tradable Emissions Permits

Market-based allowances to emit a certain amount of pollution, which companies can buy or sell depending on their need to emit more or less than their allocation.