Hard Mc (1 Viewer)

[DannyT23]

Hey guys, just found this MC, n i have no idea whats the answer, n i couldnt find the answers page, so couldi have some suggestions plz?

Investment company Alco owns a variety of shares in ASX companies and prices are falling steadily. Which of the following should Alco do to reduce risk?
A) buy more foriegn shares
B)Buy more Aust. Shares
C)Sell index derivatives
D) Introduce benchmarking ---> if this is the answer what is benchamarking in respect to shares?

Thanks guys!

 

[biggie walls]

ok its definatly not - D) benchmarking - thats just been thrown in there to misguide you, its not - A) buy more foreign shares - because that would be high risk and it doesnt say they have any there in the first place, so I've narrowed it down to B) or C)... Im not too sure how index derivatives work and whether this company would be selling them? I'd think they by buying them to hedge against risk?? so I would have to say the answer is - B) buy more Aust. shares - because by doing that they are spreading their risk across more companies and therefore reducing their overall risk...


Thankyou, *takes a bow*

 

[B35tY]

But ASX shares ARE Aus shares, and they're falling...

Perhaps they mean that the business already purchased index derivatives, and now they can sell them to take advantage of the lower prices, and hence offset the loss of the ASX shares..

Therefore my answer is C, but i'm not sure.

 

[Loz_metalhead]

I would say C

 

[Chic07]

yeh C seems the best...the business would be selling their index derivatives to minimise the financial loss before the prices go down any further and cushion the loss they have already made

 

[haru]

What is index derivative??

 

[shinji]

c is the most logical answers

a) -> why buy foreign shares when there's sometimes more risk inthat investment?
b) -> buy more aus. shares results in more loss generated. why would u wanan do tht?
d) -> benchmarking : that's when u compare ur performance according to a standard. that ain't minising the risk.

hence, c is most logical

 

[biggie walls]

Hmm looking back on this.. it is a highly ambiguious question - as so many MC are!!! But yeah I'd now have to agree with C) as the safest option