A Derivative Contract Is Transacted Between a Hedger and a Speculator

question 55

Multiple Choice

A derivative contract is transacted between a hedger and a speculator. What is the impact of the transaction on the risk profile of these two parties?

• A)It increases the risk to both parties.
• B)It decreases risk in both cases.
• C)It increases risk of the hedger and decreases risk of the speculator.
• D)It reduces the risk of the hedger and increases the risk of the speculator.

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