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    True False question

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    1. Explain why the following statements are true or false.

    a. Derivative transactions are designed to increase risk and are used most exclusively by speculators who are looking to capture high returns.
    b. Hedge funds generally charge higher fees than mutual funds.
    c. Hedge funds have traditionally been highly regulated.
    d. The New York Stock Exchange is an example of a stock exchange that has a physical location.
    e. A larger bid-ask spread means that the dealer will realize a lower profit.
    f. The efficient market hypothesis assumes that all investors are rational.

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    Solution Preview

    1. Explain why the following statements are true or false.

    a. Derivative transactions are designed to increase risk and are used most exclusively by speculators who are looking to capture high returns.
    FALSE
    Many derivatives are designed to be used conservatively as insurance policies to hedge against the possibility of loss in risky business environments.
    Use of derivatives for speculation rather than hedging is small.

    b. Hedge funds generally charge higher fees than mutual funds. ...

    Solution Summary

    Answers a True False question.

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