SIE Exam Question 417: Answer and Explanation

Question: 417

When investors put their capital at risk, they rely upon the input and advice of their financial advisors, persons associated with a broker-dealer who have been trained in the field of investments and investment risks. As a concept, hedging has its primary purpose:

• A. Increasing maximum potential profits while eliminating the risk of loss.
• B. Mitigating maximum potential loss.
• C. Limiting loss as well as limited profit.
• D. Reducing potential taxes on an investment.

Correct Answer: B

Explanation:

B: Hedging investment risks involves strategies to mitigate and to reduce exposure to investment loss. Hedging is not a concept of maximizing profits.