Final answer:
An investor would use Index options (C) to protect against systematic risk as they provide exposure to a wide range of securities in an index, covering broad market risks.
Step-by-step explanation:
The question is considering different financial instruments that could be used to protect against systematic risk, which refers to the overall market risk that cannot be diversified away. The options provided are:
-
- A) Interest rate option
-
- B) Currency options
-
- C) Index options
-
- D) Stock options
To protect against systematic risk, an investor would use financial instruments that cover broad market exposures. The correct answer to the question is C) Index options. Index options allow investors to gain exposure to a wide range of securities in a particular index, which can protect against systematic risks affecting the entire market or a sector of it. Unlike interest rate options, currency options, or stock options that protect against risks associated with specific assets or asset classes, index options deal with risks across the broader stock market.