Financial Risk Manager Part 1

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Explanation:

The statement that is not true is B.

A is true: Hedging a single stock is less efficient than hedging a diversified portfolio because idiosyncratic risk remains large relative to systematic risk.
C is true: A hedge can reduce losses but can also reduce gains; if the stock outperforms, the futures hedge may create a loss, making the net result worse than holding the stock alone.
D is true: Using S&P 500 futures to hedge Apple is a cross hedge because the hedge instrument is not the exact underlying asset.
B is false: Even if NASDAQ-100 futures may be a better proxy for Apple than S&P 500 futures, basis risk cannot be eliminated entirely.

Therefore, the correct answer is B.

Explanation:

The statement that is not true is B.

A is true: Hedging a single stock is less efficient than hedging a diversified portfolio because idiosyncratic risk remains large relative to systematic risk.
C is true: A hedge can reduce losses but can also reduce gains; if the stock outperforms, the futures hedge may create a loss, making the net result worse than holding the stock alone.
D is true: Using S&P 500 futures to hedge Apple is a cross hedge because the hedge instrument is not the exact underlying asset.
B is false: Even if NASDAQ-100 futures may be a better proxy for Apple than S&P 500 futures, basis risk cannot be eliminated entirely.

Therefore, the correct answer is B.

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Question 155.4. Assume (see previous P1.T3.) that an investor uses S&P 500 index futures to hedge the (systematic) market risk on an underlying long position in a large position in Apple (APPL) stock. Each of the following is true EXCEPT:

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MManit

Last updated: April 18, 2026 at 11:32

a) The hedge is worse than if the underlying were a well-diversified portfolio because the systematic risk is a lower proportion of the individual stock’s total risk

22.2%

b) If the investor instead uses NASDAQ-100 futures contracts to hedge the market risk, the basis risk (with respect to market risk) can be eliminated

33.3%

c) It is entirely possible that the net position (i.e., underlying plus futures contracts) performs worse than the “naked” single stock position alone

22.2%

d) This is technically a cross hedge

22.2%