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1. What is the most important difference between a trader who is hedging and a trader who is speculating? (Select the best answer.) A. A
1. What is the most important difference between a trader who is hedging and a trader who is speculating? (Select the best answer.) A. A trader who is hedging is attempting to reduce risk, whereas a speculator is taking on risk. B. A trader who is hedging most likely is a business, whereas a speculator most likely is an individual. C. A trader who is hedging is limited to using futures, whereas a speculator may use any financial asset. D. A trader who is hedging is trying to eliminate all risk, whereas a speculator is only attempting to reduce downside risk. E. A trader who is hedging will achieve the best results with put options, whereas a speculator will achieve the best results with call options. 2. Suppose that a trader would like to invest in a stock but also wants to establish protection from downside risk. Which of the following strategies would lock in on a purchase price today with protection should the price fall before the stock is purchased? A. Buy the box. B. Take a short position in a call option and a long position in a put option, both on the same stock and with the same expiration date. C. Write a covered call on the stock that the trader would like to buy. D. Buy a put option on the stock that the trader would like to buy E. Buy a call option on the stock, and invest the present value of the strike price at the risk-free rate
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