Hedger is risk-aversion; speculator is risk-taking. True False

Hedger is risk-aversion; speculator is risk-taking.

True

False

Solutions

Expert Solution

The answer is true.

Hedgers trade derivatives in order to protect themselves against unfavourable price changes, thus they are risk averse. However, hedging does not guarantee the best outcome in terms of return.

Speculators trade derivatives by betting on future price movements and hope that they will earn profit from future expected price changes.

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

Making profit by taking no risk is a risk-free arbitrage opportunity. True False

Define the following terms as they pertain to futures markets: speculator, hedger, long position, short position,...

Define the following terms as they pertain to futures markets: speculator, hedger, long position, short position, spot market, margin, margin call. Suppose a bond dealer wants to hedge its inventory of Treasury bonds. The dealer is holding $15 million worth of T-bonds with a modified duration of 15 years. The futures contract, currently priced at 161, has a modified duration of 18 years. Compute the number of contracts required to hedge the position, indicate whether you would go long or...

Beta is a measure of firm-specific risk. true or false

TRUE/FALSE Q. Prospect theory includes loss aversion by having the PT value function be steeper for...

TRUE/FALSE Q. Prospect theory includes loss aversion by having the PT value function be steeper for losses than gains.

TRUE/FALSE Q. Prospect theory includes loss aversion by having the PT value function be steeper for...

TRUE/FALSE Q. Prospect theory includes loss aversion by having the PT value function be steeper for losses than gains.

True or False: Increasing the number of stocks in a portfolio reduces market risk. A) True...

True or False: Increasing the number of stocks in a portfolio reduces market risk. A) True B) False Consider two stock portfolios. Portfolio A consists of four different stocks from firms in different industries. Portfolio B consists of 10 different stocks, also from firms in different industries. The return on Portfolio A is likely to be 1) ________ (MORE or LESS) volatile than that of Portfolio B. Suppose a stock analyst recommends buying stock in the following companies: Company Industry...

The following three true/false questions pertain to bond risk: Question 1/4 - Bond Risk: True or...

The following three true/false questions pertain to bond risk: Question 1/4 - Bond Risk: True or False: Higher risk bonds will receive a lower rating by bond-rating agencies. 2. True or False: Investors will expect higher returns on higher-risk bonds than on lower-risk bonds. 3. True or False: All else equal, the longer a bond’s term, the higher the bond’s risk. 4. True or False: Generally, loans investors make to the United States government (through Treasury Bills and Treasury Notes)...

True or False questions 11. After taking inflation into account, the purchasing power of the minimum...

True or False questions 11. After taking inflation into account, the purchasing power of the minimum wage was constant from 1970 to the present. 12. Job ladders have gotten longer in recent years as a bureaucratic hierarchy has increased. 13. Henry Ford paid workers $5 a day and granted them considerable job security through seniority rights because he wanted to attract the best workers to his factories. 14. The "new economy" is simply a shorthand way of saying that there...

When evaluating the risk preferences discussed in the study material - risk aversion, risk neutrality and...

When evaluating the risk preferences discussed in the study material - risk aversion, risk neutrality and risk seeker - which one do you identify with? Does the return increase or decrease with the type of risk with which you identify? Explain. Define in your words what risk is in the context of financial decision making and performance. Explain what is the relationship between risk and return.

True or False. When we combine stocks in a? portfolio, the amount of risk that is...

True or False. When we combine stocks in a? portfolio, the amount of risk that is eliminated depends on the degree to which the stocks face common risks and move together.

Subjects