A Call Option Can Be Used to Hedge the Risk

question 32

True/False

A call option can be used to hedge the risk of a price rise in the underlying asset.

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Definitions:

Equilibrium

A state in a market or economy where supply equals demand, resulting in price stability and no net change in economic quantities.

ATC Curve

A graphical representation of the Average Total Cost, depicting how average cost of production varies with the quantity of output produced.

Efficient

Describes a process or system that achieves maximum productivity with minimum wasted effort or expense.

Economy

The system of production, distribution, and consumption of goods and services within a particular geographical area.