Which of the following statements regarding insurance and hedging is true?
A) Both insurance and hedging deal only with pure risks.
B) Insurance reduces objective risk while hedging involves only risk transfer and not risk reduction.
C) Hedging reduces objective risk while insurance involves only risk reduction and not risk transfer.
D) Both insurance and hedging reduce objective risk but do not involve the transfer of risk.
Question 2
If insurers were to provide indemnification for losses that were deliberately caused, which characteristic of ideally insurable risks would not be met?
A) The loss must be accidental and unintentional.
B) The loss must be determinable and measurable.
C) The loss should not be catastrophic.
D) There must be a large number of similar exposure units.
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