Explain How Hedging Affects Risk and Return

question 61

Essay

Explain how hedging affects risk and return.Use a diagram to stress your points.In your answer differentiate between routine hedging and hedging selectively.

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Definitions:

Cognitive Moral Development

A theory proposed by Lawrence Kohlberg that aims to explain the process by which individuals develop their ability to make ethical decisions based on moral reasoning.

Universal Ethical Principles

Fundamental moral guidelines that are believed to be universally applicable and valid, transcending cultural, national, or individual differences.

Utilitarianism

A moral theory that suggests the best action is the one that maximizes utility, typically defined as that which produces the greatest well-being of the greatest number of people.

Deontology

An ethical theory that emphasizes duty and rules over the outcomes of actions.