Casualty Actuarial Society (CAS) Exam 2025 – 400 Free Practice Questions to Pass the Exam

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What financing plan should Heather suggest to manage uncertainty over her client's asset?

Investing in real estate

Hedging

The most suitable financing plan for managing uncertainty over an asset involves the use of hedging. Hedging is a risk management strategy aimed at offsetting potential losses or gains that may be incurred by an investment. By using financial instruments or market strategies, such as derivatives, options, or futures, Heather's client can create a position that minimizes the impact of adverse price movements on their asset value.

In uncertain market conditions, this strategy becomes particularly valuable as it allows the client to stabilize their cash flows and improve predictability of returns. For instance, if the asset's value fluctuates due to market volatility, a well-structured hedge can protect against significant losses by compensating for declines through offsetting gains in the hedging instrument.

The other options, while they may address certain aspects of risk or financial uncertainty, do not specifically focus on directly mitigating uncertainty over the asset itself in the way that hedging does. Investing in real estate, while a traditional asset management strategy, introduces its own set of risks and does not inherently provide a safety net against market fluctuations. Insurance coverage can mitigate specific risks but does not apply universally to all types of financial uncertainty associated with assets. Strict budgeting is a sound financial management practice, yet it does not address the inherent risks and

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Insurance coverage

Strict budgeting

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