16.When you you pay a premium to eliminate the risk of loss and retain the potential for gain. (a)insure (b)diversify (c)hedge (d)speculate Answer:(a) 17.In order for diversification to reduce your risk exposure,the risks must be (a)less than perfectly correlated with each other (b)more than perfectly correlated with each other (c)uncorrelated (d)none of the above Answer:(a) 18.The demand for ways to manage risk has been increased by (a)increased volatility of exchange rates (b)increased volatility of interest rates (c)increased volatility of commodity prices (d)all of the above Answer:(d) 19.Moral hazard and adverse selection are examples of (a)transactions costs (b)incentive problems (c)transference costs (d)both a and b Answer:(b) 10-510-5 16. When you ________ you pay a premium to eliminate the risk of loss and retain the potential for gain. (a) insure (b) diversify (c) hedge (d) speculate Answer: (a) 17. In order for diversification to reduce your risk exposure, the risks must be ________ (a) less than perfectly correlated with each other (b) more than perfectly correlated with each other (c) uncorrelated (d) none of the above Answer: (a) 18. The demand for ways to manage risk has been increased by ________. (a) increased volatility of exchange rates (b) increased volatility of interest rates (c) increased volatility of commodity prices (d) all of the above Answer: (d) 19. Moral hazard and adverse selection are examples of ________. (a) transactions costs (b) incentive problems (c) transference costs (d) both a and b Answer: (b)