An informal risk sharing arrangement among farmers who all grow different crops would provide better insurance than one in which all farmers grow the same crop.  True or false

Suppose a wheat farmer sells a wholesale baker a forward contract. What happens if hail destroys the farmers' crop or if the baker loses a large contract to deliver bread in the future? Will their hedges protect them against these risks? How can they manage these risks?

A borrower who takes out a loan usually has better information about the potential returns and risks of the investment projects he plans to undertake than the lender does. This inequality of information is called O a. adverse selection. b. moral hazard. C. asymmetric information. O d. noncollateralized risk.

Which of the following statement is incorrect?   The expected cost of risk per participant will stay the same through pooling arrangements as the number of participants increases, all other factors equal. A pooling arrangement result in reduced risk (standard deviation) to the participants in the pool when losses are negatively correlated. In the special case where losses are perfectly positively correlated across participants, risk can be virtually eliminated with a very large number of participants in a pooling arrangement. All the answers are correct. Insurance distribution costs may include mailing costs.