Using an Option to Reduce the Risk of a Portfolio

question 24

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

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Definitions:

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including material and labor expenses.

Cash Budget

Budget that shows cash inflows and outflows during a period of time.

Shareholders' Equity

The portion of a company's assets that belongs to shareholders after liabilities have been subtracted; also known as net assets or equity.

Credit Statement

A detailed report of an individual's or company's credit history and current credit standing, used by lenders to evaluate creditworthiness.