Which of the following statements regarding insurance and hedging is (are)true?
I.Insurance involves the transfer of insurable risk while hedging handles risk that is typically uninsurable.
II.Both insurance and hedging rely on the law of large numbers to reduce risk.

Question

Quizplus · Accepted Answer

Insurance involves the transfer of insurable risk, whereas hedging handles risk that is typically insurable. This is a key distinction between the two. Both insurance and hedging rely on the law of large numbers to reduce risk, making statement II true. Therefore, only statement I is incorrect, making answer A the best choice.

Which of the Following Statements Regarding Insurance and Hedging Is