Question

The term used by fund managers to describe the relationships between two stock prices is: Select...

The term used by fund managers to describe the relationships between two stock prices is:

Select one:

a. investing.

b. speculating.

c. hedging.

d. betting.

Homework Answers

Answer #1

Option c) hedging is the correct answer.

Explanation:

  • A common method used in the stockmarkets is hedging which is done by asset allocation(expanding an investor’s portfolio with a different type of assets)
  • Hedging is a risk management strategy applied to compensate losses in investments by choosing a contradictory position in a related asset.
  • Portfolio managers, individual investors, and companies use hedging methods to decrease their vulnerability to numerous risks.
  • A risk management strategy is helpful to restrict or compensate the chance of loss from inconstancies in the prices of stocks, currencies, or securities.

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