Using an Option to Reduce the Risk of a Portfolio

question 80

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

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Definitions:

Corporation Debts

Financial obligations and liabilities incurred by a corporation in the course of business, for which the corporation is legally responsible.

Pre-emptive Rights

The rights granted to shareholders to purchase additional shares in a company before the shares are offered to the public, to maintain their proportionate ownership.

Due Diligence

The thorough investigation or exercise of care that a reasonable business or person is expected to take before entering into an agreement or contract with another party.

Legal Entity

An organization or entity that is legally recognized as having rights and responsibilities separate from its members or owners, such as corporations, trusts, and partnerships.