Which of the following statements regarding insurance and hedging is (are)true?
I.Insurance involves the transfer of an insurable risk while hedging handles risk that is typically uninsurable.
II.Insurance transactions can reduce objective risk,while hedging typically involves only risk transfer and not risk reduction.
A)I only
B)II only
C)both I and II
D)neither I nor II

Question

Quizplus · Accepted Answer

I. Insurance is indeed about transferring insurable risks (like property damage, health issues, etc.) to an insurer, while hedging is used for managing financial risks (like currency fluctuations, interest rates, etc.) that are generally not insurable through traditional insurance products.II. Insurance can reduce objective risk by pooling and thereby diversifying risk among many policyholders. Hedging, on the other hand, involves transferring the risk to another party willing to take on that risk, often without reducing the actual underlying risk itself.

Which of the Following Statements Regarding Insurance and Hedging Is