A Small Business That Puts Aside a Specific Amount of Money

question 32

Multiple Choice

A small business that puts aside a specific amount of money into a special fund each month to cover the cost of replacing its highly specialized manufacturing equipment is using a risk ________ strategy.

• A)avoidance
• B)reduction
• C)anticipation
• D)transfer

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Definitions:

Strike Price

The fixed price at which the holder of an option can buy (call) or sell (put) the underlying security or commodity.

Call

In finance, an option contract giving the owner the right, but not the obligation, to buy a specified amount of an underlying asset at a specified price within a specified time.

Put Option Contract

A financial contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time.

Exercise Price

The rate at which the owner of an option is able to purchase (in the case of a call option) or dispose of (in the case of a put option) the underlying asset.