A Firm Owns an Asset a and It Wants to Hedge

question 54

Multiple Choice

A firm owns an asset A and it wants to hedge against changes in the value of A by making an offsetting sale of asset.A firm owns an asset A and it wants to hedge against changes in the value of A by making an offsetting sale of asset B.The firm minimizes risk by

• A)selling the same number of units of B as assets of A.
• B)selling hedge ratio (delta) number of units of B.
• C)selling the reciprocal of hedge ratio number of units of B.
• D)buying the same number of units of B as assets of A.

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Definitions:

Human Resource Controls

Procedures and policies put in place to manage an organization's human capital effectively and ensure compliance with laws and standards.

Background Checks

Procedures used to verify the personal, financial, and criminal records of individuals, typically used by employers during hiring processes.

Improper Diversion

Refers to the unauthorized or illegal redirection of resources, funds, or assets for purposes other than those intended.

Internal Control

Procedures and policies implemented by a firm to protect its assets, ensure accurate and reliable financial reporting, promote operational efficiency, and encourage adherence to laws and regulations.