One of the Drawbacks of Using Futures Contracts to Hedge

question 25

Multiple Choice

One of the drawbacks of using futures contracts to hedge is that managers in a firm may use the futures contracts to ________ and consequently increase the firm's risk rather than reducing it.

• A)hedge
• B)produce
• C)speculate
• D)increase managerial compensation
• E)expand

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Definitions:

Reinforcement

In psychology, a process by which the likelihood of a behavior is increased through the administration of positive stimuli (rewards) or the removal of negative stimuli.

Intensity of the Punishment

Intensity of the Punishment refers to the severity or harshness of a penalty intended to modify behavior through aversive stimuli or consequences.

Response

A reaction to a specific stimulus or situation, which can be psychological, physiological, or behavioral.

Delay

The act of postponing or holding off an event, action, or operation.