Using an Option to Reduce the Risk of a Portfolio

question 32

Multiple Choice

Using an option to reduce the risk of a portfolio is called ________,while using options to bet on the direction of the market or an asset is called ________.

• A)hedging,speculation
• B)hedging,verification
• C)verification,hedging
• D)speculation,hedging
• E)verification,speculation

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Definitions:

Negotiable

Capable of being discussed or modified in terms of the conditions of an agreement or contract.

Order Paper

A negotiable instrument or financial document that is payable to a specific individual or the order of a specific person.

Blank Indorsement

An endorsement on a financial instrument, such as a check, that specifies no endorsee, making it payable to the bearer.

Trust

A fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary.