CFA Practice Question

There are 221 practice questions for this study session.

CFA Practice Question

The concept of insurance relies on ______.
A. diversification
B. hedging
C. specialization
Explanation: The risks of policies typically have low correlations.

User Contributed Comments 3

User Comment
Raph Why hedging is not a good answer?
ascruggs92 I guess this is one of those "that is the more right answer" situations. Hedging is correct, but the concept of hedging relies on the idea that diversification benefits the investor.
sm200 You can hedge your risk only when the risk of one asset offsets that of the other. Since all insurance contracts have some risk that is independent of other insurance contracts it can't be termed as hedging
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