The Primary Difference Between an Entity Trying to Hedge Interest

question 2

Multiple Choice

The primary difference between an entity trying to hedge interest rate risk versus a speculator in that same financial futures contract is that the hedger is

• A)trying to protect a present or anticipated cash position
• B)trying to profit from interest rate movements
• C)trying to guess what the interest rates will be at the expiration of the contract
• D)trying to use the contract to avoid taxes

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Definitions:

Cognitive Theory

A theory of psychology that emphasizes internal states, such as motivation, problem-solving, decision-making, and thinking, as the key components of understanding behavior.

Dreaming

A series of thoughts, images, and sensations occurring in a person’s mind during sleep, often associated with rapid eye movement (REM) sleep.

Information Processing

Information processing is the sequence of steps that involves the reception, perception, and interpretation of information by the brain.

Caffeine

A stimulant found in coffee, tea, and various foods and drinks that affects the central nervous system, increasing alertness.