Advantage of Derivatives in Risk Management

Easy Alternative Investment Evaluation Risk Management

In the realm of alternative investments, proper risk management is critical for achieving desired returns while minimizing potential losses. One common approach in hedging strategies is the use of derivatives. Which of the following statements best reflects a key advantage of using derivatives in risk management for alternative investments?

Derivatives can completely eliminate all forms of risk associated with the underlying assets.

Derivatives provide the ability to achieve leverage, allowing investors to enhance potential returns with a smaller initial outlay.

Derivatives are less complex than traditional investment instruments, making them easier for all investors to understand.

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