Which of the following statements is FALSE? Select one: a. Some financial derivatives can be bought over-the-counter. b. Some financial derivatives can be bought and sold on an exchange. c. Hedging is the same as gambling in the financial markets. d. When a business has a naturally short position with respect to a commodity, its profit will decrease as the market price of the commodity increases.
Question
Which of the following statements is FALSE?
Select one:
a. Some financial derivatives can be bought over-the-counter.
b. Some financial derivatives can be bought and sold on an exchange.
c. Hedging is the same as gambling in the financial markets.
d. When a business has a naturally short position with respect to a commodity, its profit will decrease as the market price of the commodity increases.
Solution
The false statement is:
c. Hedging is the same as gambling in the financial markets.
Explanation:
a. True - Some financial derivatives can indeed be bought over-the-counter. This means they are traded directly between two parties, outside of an exchange.
b. True - Some financial derivatives can be bought and sold on an exchange. This means they are traded on specific financial markets like the New York Stock Exchange.
c. False - Hedging is not the same as gambling. Hedging is a risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In contrast, gambling is betting on an uncertain outcome, often with a potentially high risk of loss.
d. True - When a business has a naturally short position with respect to a commodity, its profit will decrease as the market price of the commodity increases. This is because the business will have to buy the commodity at a higher price to fulfill its obligations.
Similar Questions
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